SA’s private sector economy contracted for the first time in seven months in October, as firms reported renewed declines in output and sales despite record improvements in supply chains and “one of the softest levels of cost pressures since mid-2020”, the latest S&P Global SA purchasing managers’ index (PMI) showed on Wednesday.
The PMI fell to 48.8 in October from 50.2 in September, slipping below the 50-point mark that separates expansion from contraction. The latest reading reflects the sharpest slowdown in business activity since March.
S&P Global Market Intelligence senior economist David Owen said: “[The fourth quarter] began with a renewed drop in business conditions in SA, as companies reported a moderate degree of demand weakness leading to a fresh cut in output…. Business confidence was also low, adding to signs of softer growth as the year comes to an end.”
The PMI is a weighted average of five indices: new orders, output, employment, suppliers’ delivery times and stocks of purchases.
Supplier performance (an inverted reading) improved sharply, with delivery times shortening at one of the fastest rates since the series began more than 14 years ago “to signal a solid improvement in supplier performance in the SA private sector during October”, S&P noted.
Companies cited fewer logistics bottlenecks and reduced pressure on vendors due to softer input demand.
Cost pressures also moderated further. The survey’s purchase price index signalled the weakest increase in input costs in more than five years, helped by a stronger rand against the dollar and easing wage growth, which was at its mildest since December 2021.
Despite these positives, the decline in new orders and output weighed heavily on overall business activity. New business volumes fell at the fastest pace since March, due to weaker intakes of new business. Many firms are reporting weaker customer spending amid uncertain domestic conditions.
Export sales also declined at their quickest rate in nearly a year.
Firms responded by trimming their input purchases and working through backlogs of work during October, while employment showed a slight increase.
Selling price inflation slowed as businesses offered discounts to stimulate demand, and construction firms reported outright reductions in both input costs and output prices.
“The construction sector also observed the steepest falls in both output and sales out of the monitored segments of the private sector,” S&P said.
According to Owen, “a softer increase in prices charged also suggested that inflation rates are likely to be subdued in the coming months barring any notable movements in exchange rates”.
The drop in business conditions meant output expectations edged slightly higher from September’s near four-year low, with 34% of firms forecasting growth over the next 12 months and just 5% predicting a decline, suggesting cautious optimism amid a challenging economic backdrop.
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