Business conditions have gradually risen over the year, increasing to their best level since the beginning of 2017, indicating a marked increase in quarter-on-quarter activity growth.
Private sector activity increased for the first time in three months, reflecting a slight recovery in demand, which led to an increase in new business volumes.
These monthly indicators provide more clues about the momentum for GDP growth this year and while there were some who expected SA to be in a technical recession after anticipated negative growth in quarter three, economists now expect economic growth for the third quarter to have “lifted” despite “considerable volatility” in monthly indicators.
Absa said it expects GDP to have rebounded by 0.7% quarter on quarter in the third quarter after falling by the same magnitude in the previous quarter.
The Reserve Bank expects 0.4% GDP growth in the third quarter, while FNB economists are slightly more optimistic, pencilling in a 0.6% rise, “underpinned by a rebound in the productive sectors of the economy, with manufacturing production growing by 1.9% quarter on quarter and mining production growing by 2.2%, despite persistent load-shedding”.
FNB chief economist Mamello Matikinca-Ngwenya said even though there are risks to the forecast “largely posed by the performance of the private tertiary services sectors, the transport sector growth momentum also carried over into the third quarter ... Our final estimate is for economic growth of around 0.6%.”
This is in line with the S&P Global SA purchasing managers’ index (PMI), a composite gauge designed to give a snapshot of operating conditions in the private sector economy, which showed an increased to 50.6 in November from 49.5 in October after a two-month contraction.
“The PMI was back above the 50 neutral mark in November, thereby ending a two-month sequence of declining operating conditions, in large part due to load-shedding,” said David Owen, an economist at S&P Global Market Intelligence. “That said, load-shedding remained a key feature of the latest survey and meant that output levels continued to fall despite a slight upturn in new orders.”
Owen said November data signalled a rise in sales for the first time since August.
Business trends
SA’s private sector makes up more than 70% of the economy and accounts for at least 75% of the employed workforce, as well as most investment.
And unlike the Absa PMI, which tracks activity in the manufacturing sector, the S&P PMI tracks business trends across the private sector based on data collected from a representative panel of about 400 companies.
Owen said data showed that SA businesses remained markedly upbeat about future activity in November. “Half of all surveyed firms predicted output to expand over the next year, against 7% that expect a decline, amid expectations that disruption from load-shedding will ease and price pressures will continue to soften,” he said.
FNB/BER on Monday reported that business confidence increased to 31 in the fourth quarter from 24 in the third quarter, reflecting that respondents are upbeat about prospects in 2023.
The FNB/BER civil confidence index varies between 100, which indicates that all respondents are satisfied with prevailing business conditions, and zero, indicating that all respondents are dissatisfied. A level of 50 indicates that respondents are equally divided between satisfied and dissatisfied.
FNB said confidence ticked up on the back of better activity and, in turn, profitability.
“Last quarter the survey results indicated a marked increase in quarter-on-quarter activity growth. Encouragingly, there seems to have been a further improvement in the fourth quarter,” said FNB senior economist Siphamandla Mkhwanazi.
But Mkhwanazi said that despite the improvement, sentiment is still quite downbeat compared with the long-run average of 43.
While the results this quarter are encouraging, the disconnect between activity growth, which is well above the survey’s long-term average, and sentiment — which is stuck well below 50 compared with a long-term average of 46 — highlight the effect that factors not expressly surveyed have on the mood of contractors, “the concerns around the protracted delays between tender adjudication and award and the cost of business forums, or the construction mafia, were mentioned.
“These concerns weigh increasingly on sentiment,” said Mkhwanazi.
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