Business activity off to a slow start
• Demand levels in the private sector worsened at the start of 2024, S&P Global index shows
Demand levels in the SA private sector continued to worsen at the start of 2024, affected by weak demand as well as challenges businesses faced on the supply side largely as a result of the Durban port crisis, a survey has found .
The S&P Global SA PMI published on Monday edged up to 49.2 in January from 49 in December.
The print remains in contractionary territory below the 50point neutral mark, indicating a slight decline in the private sector’s performance for the second month running.
S&P Global Market Intelligence senior economist David Owen said SA businesses remained beset by demand- and supply-side challenges at the beginning of 2024, “notably the Durban port crisis and its impact on delivery times and output capacity”.
He said the latest PMI data suggested supplier performance worsened at a similar pace to December’s 23-month record with some firms noting shortages of inputs and the curtailment of activity.
“At the same time, companies registered the sharpest decline in new orders in exactly a year, as the impact of inflation and weak customer confidence continued to be felt across all sectors,” he said.
“That said, a slowing of input cost inflation meant output prices rose modestly, which suggests clients should start to see some relief on prices.”
The whole-of-economy PMI comes after the release of the January Absa manufacturing PMI last Thursday, which moved back into contractionary territory below the 50-point mark, indicating a challenging start to 2024 for the sector.
The Absa PMI, published in partnership with the Stellenbosch-based Bureau for Economic
Research (BER), showed industrial activity plummeted in the first month of 2024 to 43.6 index points, down from 50.9 in December.
The sector remained below the neutral 50-point mark for most of 2023, with the decline in September a result of poor global demand caused by sluggish growth momentum in the eurozone and the UK — both key export markets for local manufacturers.
According to S&P Global, firms reported a decrease in new business for the ninth month in a row amid weak economic conditions and reduced client spending power.
New orders from abroad also fell due to worsening global demand, and shipping disruption led to a drop in sales.
At the same time purchase costs rose at the weakest pace since December 2020 and wage costs lifted only modestly while employment fell at the slowest pace in three months.
Owen said delays to the processing of shipping containers meant that one in five firms saw their delivery times lengthen over the latest survey period, marking the second-fastest deterioration in supplier performance in nearly two years.
“Combined, these factors resulted in a solid contraction in business activity in January, the fifth monthly decrease in a row. The rate of reduction softened slightly from December, however, in part due to an uptick in services output,” he said.
More positively, the latest survey data gave some more positive news with regard to inflation.
Most notably, purchase costs rose at a slower rate for the sixth month running and posted the weakest increase since December 2020. Similarly, wage costs lifted only modestly and to the least extent in two years, as weaker demand weighed on hiring and salary pressure
Also, Owen said businesses were strongly upbeat about activity and demand trends in 2024, with many predicting an improvement in economic conditions that could help drive company expansion. The degree of optimism had risen to its highest since last July, he said.