Private-sector business conditions tick up in January
The IHS Markit PMI shows conditions are still in weak territory, however, amid weaker new orders and stronger cost pressures leading to job losses
Business activity in January improved from last year’s weak close, thanks to slower contractions in both company output and new orders.
Nevertheless, business conditions remain in weak terrain, according to the latest IHS Markit SA purchasing managers’ index (PMI), amid poor demand, a lack of investment and partial load-shedding.
Weaker new orders and stronger cost pressures led businesses to reduce staff numbers in January, with the rate of job losses the quickest seen since September 2017.
The headline PMI reached 48.3 index points in January, up from 47.6 in December, “to signal a softer and only moderate deterioration in SA private-sector business conditions”, the company said in a release.
The headline SA PMI is an indicator of private-sector business performance taken from a survey of 400 private-sector companies across the economy. It is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases. A reading of more than 50 shows overall improvement in the sector.
“Following the disruption from severe load-shedding in December, SA’s private sector continued to deteriorate at the start of the year, with output and new orders falling further,” said David Owen, economist at IHS Markit. However, the rate of decline in these two sub-components eased, helping lift the headline number, “signalling that the downturn may have bottomed out”.
Power interruptions began in earnest in December as utility Eskom battled severe operational shortcomings. These have continued into January and February, with Eskom’s new CEO André de Ruyter warning that load-shedding is going to continue as Eskom aims to return to a more thorough maintenance schedule of its ageing power plants.
On a more positive note, export orders increased for the first time in five months, pointing to a stabilisation in some international markets, said Owen. Entering the new year businesses “are noticeably more upbeat” about the outlook for activity.
“The level of sentiment is at its strongest since last June, as firms hope for improving market conditions as government plans for Eskom and infrastructure spending begin to take shape,” he said. “Nonetheless, it will likely take some time before long-term government policy positively affects markets.”
The SA PMI follows on from a similar gauge assessing business conditions in the manufacturing industry, released earlier this week.
The ABSA PMI came in lower than market expectations, contracting in January. Its measure of expected business conditions recorded its worst levels in 15 months, thanks to uncertainty about load-shedding and the prospects for global growth.
Research by PwC put out on Wednesday warned that the slowdown in global trade volumes experienced in 2019 could continue into 2020, with the pace of globalisation expected to carry on at “a significantly slower pace”.
This is “bad news for SA exporters” such as wine fruit producers, platinum mines and vehicle manufacturers, PWC said. “It is an unwelcome development that will require export-orientated SA companies to consider various scenarios for the world economy and global trade patterns in the short to medium term.”