IHS Markit PMI shows contraction in private sector activity
Businesses were hampered by a faster drop in new orders and a fourth month of declining export sales in May, says IHS Markit
The government will struggle to reignite growth this year, with private sector business declining in May, as new orders fell at their quickest pace in six months, IHS Markit said on Wednesday.
The economic and financial analysis group’s SA purchasing managers index (PMI) fell to 49.3 index points in May, a decline from April’s 50.3 points.
The index tracks variables such as new orders, output, employment, inventories and prices. A reading above 50 indicates expansion in business activity and below 50 indicates contraction.
Crucially, the sector has failed to post consecutive monthly improvements in operating conditions for more than a year, IHS Markit said on Wednesday.
A key factor influencing the deterioration was the quickest decline in new orders since last November. Firms continued to report weak economic conditions, although the recent elections were also to blame for the fall in demand, the group said. Export sales meanwhile dropped at a marginal rate.
SA businesses responded with a moderate cut to output in May, following broadly stable levels during April. This partly caused a build-up of stocks, which led firms to reduce their purchases over the course of the month, the survey found.
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"Nevertheless, firms are hopeful that the new government will bring some much-needed stability to the markets,” IHS Markit economist David Owen said in the release. Future sentiment rose to the highest level for 13 months, showing there was still confidence in SA’s economy.
“Nevertheless, recent PMI readings show that the government faces a difficult struggle to reignite growth this year,” Owen said.
The survey, looks at the whole economy in contrast to the Absa-sponsored PMI, which focuses on manufacturing.
That index, released on Monday, also disappointed. The index fell to 45.4 index points in May from 47.2 points in April, bringing the average for the first two months of SA’s second quarter to 46.3 points, below the average 47.1 points in the first.