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Downward spiral for SA private sector

Written by CBN

The expansion in South Africa’s private sector slowed to a crawl in May as power supply shortages and weak export demand weighed on output, a survey showed on Wednesday.

The seasonally adjusted Markit/HSBC whole economy purchasing managers’ index (PMI) fell from 51.5 in April to 50.1 last month — the lowest reading in three months. Despite the drop, a reading of above 50 still signals an improvement in business conditions.

The main downward contribution to the PMI came from a decline in output, with companies reporting the first fall in activity since January. They attributed the decline to power outages and a lack of demand.

The drop in output meant there was little appetite for companies to hire more staff. Employment levels in the private sector fell for the first time in three months, although the rate of job shedding was only marginal.

Although output fell, private-sector companies signalled a third successive monthly rise in new business last month driven by stronger domestic demand. New export orders declined at the strongest rate in 10 months, HSBC reported.

Backlogs of work fell further during last month, signalling some spare capacity at companies. Input prices unsurprisingly continued to increase, with the rate of cost inflation the strongest since March last year. The petrol price has increased a cumulative R3/litre since March. Companies raised their charges last month in response to higher input costs.

“May’s survey results paint a worrying picture of the health of South Africa’s private sector economy. Survey respondents partly blamed ongoing power outages for the drop in activity,” said Oliver Kolodseike, an economist at financial information services firm Markit, which helped compile the survey.

South Africa is battling its most serious power supply shortages since 2008 and State-owned power utility Eskom implements frequent rolling power cuts to avoid overwhelming the grid. The survey also showed that while strong domestic demand lifted new orders, export demand declined at its fastest rate in ten months despite a relatively weaker rand.

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