SA’s PMI falls in June due to government uncertainty

Private-sector activity fell in June as output and new orders slipped on uncertainty over the outcome of an election held in May, a survey showed on Wednesday. 

The S&P Global SA Purchasing Managers’ Index (PMI) fell to 49.2 in June from 50.4 in May. A reading below 50 indicates contraction. Business conditions deteriorated in tandem with the quickest fall in output in three months and a drop in new order volumes for the fourteenth month in a row.

The index is a composite gauge designed to give a single-figure snapshot of operating conditions in the private sector economy 

S&P Global said the SA PMI “signalled a cooling of price pressures on private sector businesses at the midpoint of the year, leading to the softest rise in input costs since August 2020. 

“The slowdown followed reports of a positive impact from strengthening exchange rates on the rand and steadily reducing fuel prices, which also resulted in a weaker increase in selling prices,” S&P Global said.

“Nevertheless, business conditions across SA deteriorated for the first time in three months in June amid sharper falls in output and new business, as firms often noted a degree of client hesitancy due to uncertainty around the election outcome. 

“The decline led to renewed drops in purchases and staffing, although confidence in the outlook improved to a four-month high,” the ratings agency said.  

S&P Global said the index was consistent with a marginal deterioration in the health of the private sector. Four of the five sub-components of the PMI (which does not include prices) indicated a worsening of operating conditions during June, including renewed drops in employment and stocks of purchases.

Output and new orders fell at their quickest rates since March, as survey panellists often highlighted weaker client demand due to political uncertainty following the general election. Positively, new orders from abroad picked up marginally for the second month running.

S&P Global noted that with sales declining, businesses reduced their input purchases during June, leading to the first drop in inventory levels in 2024 so far. Employment numbers were also cut, albeit mildly, with survey evidence largely attributing the decrease to the non-replacement of leavers.

S&P Global Market Intelligence senior economist David Owen said: “Despite June survey data pointing to a worsening of business conditions, SA's private sector remains in a favourable position as we reach the midpoint of the year.

With Reuters

ensorl@businesslive.co.za