Power cuts hurt business activity over December
The IHS Markit SA purchasing managers’ index for December recorded the sharpest rate of decline since October 2018
Private-sector business activity took a hit in December as the year ended on a sour note, thanks to intensified load-shedding and weak demand.
The latest headline IHS Markit SA purchasing managers’ index (PMI) for December fell to 47.6, down from 48.6 the previous month. This marks the eighth consecutive month of deterioration in business conditions in the private sector and the sharpest rate of decline since October 2018, IHS Markit said in a release.
The headline SA PMI is an indicator of private-sector business performance taken from a survey of about 400 private sector companies. It is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases.
A reading of over 50 shows overall improvement in the sector.
In early December, power utility Eskom began load-shedding amid operational difficulties and severe rainfall in some parts of the country. That precipitated unprecedented stage 6 load-shedding on December 9, or cuts of 6,000MW from the country’s national electricity grid.
The power interruptions began afresh on Saturday after a reprieve over the festive season, just as much of SA prepared to return to work.
“With the country's electricity supplier Eskom implementing stage 6 load-shedding in December, many SA businesses saw activity and trade brought to a standstill,” said David Owen, economist at IHS Markit.
“The PMI reflected this disturbance, as well as severe weather conditions, falling to a 14-month low at year-end amid a sharp decline in private sector output and further falls in total new orders and export orders.”
Businesses widely reported that load-shedding had a negative effect on output during December, the analytics firm said.
Activity fell sharply, with the rate of decline the quickest in 14 months, while firms mentioned that poor weather conditions and lower sales contributed to the downturn.
New orders also fell at the fastest rate in 14 months in December, according to IHS Markit. This continued a declining trend begun in the middle of 2018, with firms linking weaker sales to a subdued economic landscape and the latest round of load-shedding.
Business expectations for the coming year are, however, broadly positive, with firms expecting output to pick up. But there was still concern from some participants that weakness in economic conditions will persist.
“Eskom has warned that further load-shedding could occur in January and beyond, placing greater headwinds on domestic firms,” Owen said.