Dire data points to no quick haul out of recession
The recovery from SA’s first recession since 2009 is likely to be very slow, data measuring private sector activity indicated.
According to Standard Bank’s Purchasing Managers’ Index (PMI), private sector activity slipped to its lowest level in more than two years in August.
The index is based on data about new orders, employment and operational costs compiled from purchasing executives in about 400 private sector companies in the manufacturing, mining, services, construction and retail sectors.
The dip was driven by policy uncertainty, increased cost pressures from elevated oil prices, rand weakness and labour strikes, said Standard Bank economist Thanda Sithole.
This comes after GDP numbers from Stats SA on Tuesday showed SA had entered a recession in the second quarter for the first time since 2009, another blow to President Cyril Ramaphosa’s efforts to revive the economy. GDP contracted 0.7% in the second quarter, following a 2.6% decline in the previous three months.
The weak economic picture "will further dent hopes that Ramaphosa’s presidency would lead to a marked turnaround in SA’s economic fortunes", said Capital Economics economist John Ashbourne.
The PMI, which looks at the whole economy, dropped to 47.2 index points from 49.3 in July — a 29-month low. A score below 50 indicates a contraction in business conditions.
"The South African economy urgently needs a conducive environment for the private sector to flourish, of which a prerequisite will have to be policy certainty," said NKC economist Elize Kruger.
Without greater policy certainty, "the economy will continue to struggle, muddling along, going nowhere slowly," Kruger said.
On Tuesday, investment bank Goldman Sachs downgraded its growth forecast for SA from 2% year on year to a mere 0.8%, well below the 3% Ramaphosa was targeting for 2018. The bank said while once-off factors and seasonal adjustments could explain weakness in the first quarter, "these arguments hold less water for the second quarter".
Merrill Lynch followed suit, cutting its growth forecast to 0.9% from 1.6%. It also revised down its forecast for 2019 from 1.8% to 1.5%.