Private sector weighed on by a weak economy and the coronavirus

Private-sector business conditions improved fractionally in February, but SA’s weak economy is weighing heavily on business activity, seeing steep jobs cuts, as the effects of the coronavirus are felt.

According to the latest IHS Markit numbers, its SA purchasing managers’ index (PMI) edged up to 48.4 points in February from 48.3 the previous month. The minor uptick, notwithstanding business conditions, remains in contraction territory at below 50 index points.

The release comes as Stats SA confirmed on Tuesday that the economy slid into a recession in the second half of 2019. Prospects for economic growth in 2020 are looking dimmer as Covid-19’s global spread from China, where it began, weighs on international trade and supply chains.

Business activity fell for the 10th consecutive month, IHS Markit said in a statement, as firms continued to struggle with lower order book volumes and load-shedding. “Demand was again restricted by poor conditions in the domestic market, while some panelists noted a drop in export sales from China following the coronavirus outbreak,” it said on Wednesday morning.

On the back of weak demand and rising input costs firms have responded by cutting jobs — with the data showing the fastest decline in private-sector employment since July 2011, when the survey first began.

The headline PMI is an indicator of private-sector business performance taken from a survey of 400 companies across economic sectors. 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.

The coronavirus outbreak has started to have a notable effect on economic factors, said IHS Markit economist David Owen. “With China being SA’s largest trade partner, the shutdown of factories and offices in the world’s second-largest economy led to a steep lengthening of input delivery times.” 

Researchers at Trade & Industrial Policy Strategies (Tips), an industrial policy think-tank, warned  in a recent brief that, in the absence of clear plans to deal with the economic effects of the virus, there is likely to be a “further slowdown in growth, as well as substantial job losses and closures, especially of smaller, more informal businesses”.

Industries such as automotive components, consumer electronics — notably cellphones and laptops — and solar panel manufacturers are all heavily reliant on imports from China, it noted, whether for the goods themselves or for intermediate inputs into local production.

“SA industries are already feeling the effect, and there is a risk that the consequences could worsen significantly,” Tips said, highlighting the reliance SA has on China as a market for its commodities 

“If the downturn in China persists or deepens, SA’s mining industry, in particular, will suffer significant losses, with an effect on workers and communities as well as companies,” it said.

Tips said that the virus has called into question the model of increasing exports of unrefined ores to China, which makes SA vulnerable to its growth patterns. 

donnellyl@businesslive.co.za