Steepest decline in South African economic activity in 51 months
ECONOMIC activity in the private sector experienced its steepest decline rate in 51 months in October, weighed down by falling sales and higher prices.
The Standard Purchasing Index (PMI) fell to 46.90 points from 48 points in September, marking the fourth straight contraction in business activity and the sharpest in the health of the private sector since July 2014.
David Owen, an economist at IHS Markit, which compiled the PMI, said businesses were affected by a number of economic factors leading to weak demand across. Owen said companies raised selling prices at the fastest rate in more than two years.
“Output price inflation was at a 27-month high during October. Companies found that current economic conditions have led to a number of cost pressures, including rising fuel prices and the weakening value of the rand,” Owen said. “Companies responded with a steep reduction in purchasing activity, raising worries of a decline in gross domestic product in the fourth quarter.”
The survey rode the “Ramaphoria” wave in February and registered 51.4 points, signalling an improvement in business conditions for the first time in seven months. However, the country’s economy recorded a technical recession in the second quarter.
The index said outlook for the rest the year would remain subdued as outlined in the medium-term budget policy statement presented last month.
It found that the amount of new business fell at a steep rate in October, with the pace of contraction eerily similar to August’s 49-month low.
Owen said panellists suffered from weak demand in both domestic and foreign markets, with many citing the current economic downturn as a contributing factor, while new export orders were discouraged by currency instability. Data from the South African Revenue Services last week showed that the September trade balance recorded a surprise deficit of R3 billion.
Lara Hodes, an economist at Investec, said the domestic situation was further constrained by faltering global trade conditions, which undermined export growth. “New sales orders continued to slide, while business activity remained muted. This is indicative of a subdued domestic economy, characterised by mounting supply driven inflationary pressures and muted local activity,” Hodes said.
The results of the Standard Bank PMI, which looked at the overall view of activity in the South African economy, mirrored the equally disappointing Absa manufacturing sentiment last week.
Absa said its PMI showed that the jobs bleeding manufacturing sector slid to a 16-month low in October. The PMI fell to 42.4 points, sliding further into contraction from the 44.5 points recorded in September.
This week will also see the release of mining and manufacturing production updates for September which will conclude the struggling sectors’ releases for the third quarter.