Private-sector business conditions slumped in May
The latest IHS Markit SA purchasing managers’ index hit new lows in May, despite SA’s move to level 4 lockdown restrictions
Private-sector business activity fell to its worst level in May despite a partial easing of Covid-19 lockdown restrictions.
The latest IHS Markit SA purchasing managers’ index (PMI), an economy-wide gauge of business conditions, fell to a record low of 32.5 index points in May, its third consecutive month of declines. It was down from April’s reading of 35.1 — the previous record low in the series, which began in July 2011.
The SA PMI is an indicator of private-sector business performance taken from a survey of 400 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.
During May, all sub-components covered by the survey fell to their lowest levels on record, with the series measuring expectations for business activity in the coming year turning negative for the first time.
“Firms are increasingly concerned that the extended lockdown period may hurt business activity for some time,” said David Owen, economist at IHS Markit, in a statement.
The government’s decision to reopen much of the economy with the move to a level 3 lockdown, which began on Monday, “may lead to strong bounce bank in PMI readings if businesses are able to restart quickly”, he said.
The release of the index follows that of the Absa PMI, which reflects conditions in the manufacturing sector, released earlier this week.
The headline Absa PMI recorded a recovery in May as SA moved to lockdown level 4. However, important sub-components of the manufacturing gauge remained in depressed territory — despite coming back from historic lows. The underlying data pointed to still weak manufacturing capacity and depressed domestic demand, said economists at the time.
With several official statistical publications delayed due to the coronavirus, the indices are being closely watched as they are among the few data points able to provide insight about the economy’s performance during the lockdown.
“The lockdown across SA ... is likely to massively affect economic growth, according to the SA PMI,” said Owen
Though estimates vary, the SA Reserve Bank expects GDP to fall by 7% this year, while private-sector organisation Business for SA estimates a drop of anywhere between 8.8% and 16.1%.