SA business conditions worsen in February, but more slowly

SA’s private sector remained under pressure in February, with business conditions deteriorating for a third consecutive month, according to the latest S&P Global SA purchasing managers index (PMI).

The PMI reading edged up to 49.0 from 47.4 in January — still below the neutral 50 mark that indicates conditions are worsening overall.

However, the new PMI figures show that the rate of deterioration eased compared with the sharp downturn seen at the start of the year when the index hit a three-and-a-half-year low.

“February data signalled a partial recovery in economic momentum in SA,” S&P Global Market Intelligence senior economist David Owen said.

“This recovery appeared to be largely due to a softer contraction in business activity, as some firms experienced improved demand conditions and the resumption of projects,” Owen said.

The softer contraction was attributed to a slower pace of decline in output, new orders, employment and inventories.

Nonetheless, demand pressures persisted, especially in the wholesale and retail sectors, where companies reported the sharpest declines in sales.

While export sales also contributed to the decline, the latest drop was the softest observed in six months, with some firms benefiting from reduced political unrest in Mozambique, which had previously weighed on cross-border trade.

‘Not accurate’

“I think [PMI] is weak because of weak sentiment around the global uncertainties, especially those coming from the US,” Old Mutual chief economist Johann Els said.

He did not think the figures were an accurate reflection of what he called “somewhat better conditions” domestically.

“We’ve had limited load-shedding compared to the start of last year. Confidence is picking up amongst consumers. Political risk has eased quite a bit since the elections last year,” Els said.

“The Reserve Bank’s leading indicator index has generally been tracking upwards. Consumer spending, in terms of retail sales, and car sales have been trending upwards.”

While uncertainty in business is never good, he said he did not believe this was a fair reflection of SA’s economy.

“Despite the strengthening US dollar since the US elections in November last year, the rand has actually outperformed many other currencies globally.

“The rand is also one of those measures that perhaps reflect somewhat better investor confidence in SA — again, relative to last year and relative to other countries. So it’s not all doom and gloom.”

Owen said: “The only caveat to the broader improvement was a sharper rise in average cost burdens, which adds to evidence that CPI [consumer price index] has already bottomed out and is likely to increase further from its low of 2.8% year on year in October.”

Backlogs

With fewer new orders for the third consecutive month, businesses turned their attention to clearing backlogs at the fastest pace in more than four years.

This excess capacity led to further job shedding and reduced purchasing activity, though both declined at a slower rate than in January. Employment losses were limited to fractional declines.

Input costs rose at their fastest pace in six months, with businesses citing higher electricity, fuel, materials and labour costs.

This acceleration in cost inflation raises concerns that consumer prices may face upward pressure in the coming months.

However, wage pressures eased from the 20-month high seen in January, offering some relief.

Input delivery times lengthened for the 20th consecutive month in February, but the rate at which they worsened was relatively mild, mirroring the trend seen in January.

According to surveyed companies, reduced port congestion in Durban — coupled with lower order volumes — helped ease some pressure on suppliers. However, recurring load-shedding led to sporadic delays, keeping supply chains under pressure.

Even though input costs increased in February, the overall pace of cost inflation was still well below the long-term average recorded by the survey.

As a result, businesses raised their selling prices only moderately. Sector data indicated that inflationary trends were strongest in the construction industry.

Positive outlook

Despite the tough operating environment, SA firms maintained a largely positive outlook for the months ahead.

Surveyed companies were broadly optimistic about future output, with confidence levels slightly better than December’s 20-month low.

Firms expecting growth cited improved sales, product development and efficiency gains as drivers of recovery.

However, uncertainty surrounding SA-US trade relations could cloud the outlook, S&P Global warned.

“Concerns about trade relations between SA and the US raised some apprehension that the sales environment could remain volatile. Nevertheless, the overall balance of output expectations was still largely positive, suggesting that firms generally anticipate conditions to recover soon.”

Update: March 5 2025
The article has been updated with reaction.

marxj@businesslive.co.za