South Africa’s business conditions continue to improve but at slower pace

South Africa business conditions showed slower improvement in April as PMI revealed a 50.4 value, signaling a more subdued rate of improvement in the South African private sector. Supporting the overall improvement was an increase in new orders, which rose for the third month in succession. Furthermore, workforce numbers continued to grow in response to planned business expansions. However, a combination of factors, including the listeria outbreak, caused output to slip into contraction territory, which in turn led to a softer overall pace of improvement in the sector. Meanwhile, inflationary pressures built during April, with higher cost burdens fueling stronger output price inflation.

“The private sector Purchasing Managers’ Index (PMI) showed that domestic business conditions continued to improve in April, albeit at a slower pace compared to March. The PMI softened to 50.4 in April from 51.1 in March. “The slowdown in April’s PMI was largely driven by the output sub-index which fell into contraction territory (i.e. below the 50-neutral mark) as a result of the listeria outbreak, recent labor strikes and a VAT hike, from 14% to 15%. The decline in the output sub-index marginally outweighed continued increases in other major PMI sub-indices such as new orders, employment and stock of purchases. “Nevertheless our view remains unchanged that, over the near term, the PMI should continue showing signs of improving domestic business conditions supported by the improved domestic political backdrop, looser monetary policy and stable ratings outlook. But also the recent survey has shown significant improvement in domestic consumer confidence. This should also provide further support to the PMI ahead.” Thanda Sithole Economist at Standard Bank