Private sector slowdown extends in November

The private sector economy remained under pressure in November, with business activity declining for a second straight month amid weaker domestic demand and a sharp pickup in cost pressures, according to the latest S&P Global South Africa Purchasing Managers’ Index (PMI), released on Wednesday.

The headline PMI rose slightly to 49.0 in November from 48.8 in October, signalling a continued but marginal deterioration in operating conditions. Readings below 50.0 indicate a contraction in private sector activity.

S&P Global Market Intelligence senior economist David Owen said: “The October and November PMIs suggest [the fourth quarter] may be a softer one for the South African economy, particularly if December figures also come below par. That said, after seeing improving business conditions throughout the middle of the year, the recent data may only reflect a modest cooling-off.”

Private sector activity and new orders both fell again in November, as firms reported fewer new projects and challenging economic conditions. The drop in activity marked the fastest downturn in eight months.

While international sales picked up, domestic demand remained a drag. Sector performance was mixed — industry and construction contracted while services and wholesale and retail trade showed modest improvements.

The survey pointed to a renewed build-up in price pressures. Firms experienced their steepest rise in input costs in over a year, driven by higher purchase and wage expenses, prompting businesses to raise output prices at the fastest pace since February.

Owen cautioned that sustained price increases could hurt margins and demand. “The risk will be whether the uptick in price pressures observed in November is sustained, a factor that could hit business margins and customer demand. Firms raised their selling prices at the fastest rate in nine months, which signalled only a limited ability to absorb cost burdens,” he said.

Despite these challenges, some indicators offered encouragement. Supplier delivery times improved for an eighth consecutive month, extending a record run of efficiency gains, though the pace of improvement slowed from October’s historic high.

Employment also rose for the second month, albeit modestly, and purchasing activity stabilised after October’s contraction.

Encouragingly, business sentiment strengthened, with expectations for future output reaching a 12-month high. Nearly half of surveyed firms (46%) anticipated higher activity over the next year, citing new business opportunities and improved economic prospects.

Owen said the improvement in sentiment and hiring put firms “in a good position to raise output should order book volumes recover”.