Reference: Published by Luke Fraser (BusinessTech), 5 September 2023

In August, South African business activity increased for the first time in a year, with the latest S&P Global South Africa Purchasing Managers’ Index (PMI) returning to positive territory after months below the line.

The PMI is a composite indicator of the private sector’s operating conditions. It increased from 48.2 to 51.0 in August.

This is the first time in six months that the PMI has risen beyond the neutral 50-point market level.

“The August South Africa PMI pointed to an encouraging turnaround in the private sector economy midway through the third quarter, as companies reported an increase in output for the first time in a year and demand conditions were broadly steady,” said David Owen, Senior Economist at S&P Global Market Intelligence.

“While inflationary pressures continued to sap customer spending power in many areas, there were hints that order books may be starting to improve, leading firms to make concerted expansion efforts.”

Despite significant increases in wages and material prices, the recovery in output enabled businesses to hire more workers and purchase more goods. The surge in layoffs is due to firms’ need to boost capacity and reduce work backlogs.

Despite the fact that new order inflows fell for the fourth month in a row due to load shedding and the cost-of-living issue, the newest statistics revealed that the drop was the weakest in the series.

Several companies also reported a rise in customer numbers and a revival in domestic demand. Export sales, on the other hand, fell somewhat in August.

There was nevertheless good news for inflation, as business costs rose at their slowest rate since January, resulting in a slower increase in a firm’s output charges.

Price pressures maintained, however, as a result of the rand’s weakness, wage hikes, and supply concerns, which were compounded by the Cape Town taxi driver strike.

Companies also witnessed a modest gain in input stores during August, while inventories fell during the previous four months. This expansion occurred despite a significant deterioration in supplier performance.

Looking ahead, South African firms remained optimistic about future activity, despite a modest drop from a nine-month high in July.

Firms were confident about increased demand, lower inflation, and a reduced impact of load shedding on their operations.

However, Owen cautioned that the August improvement should not be overblown.

“August’s rebound does little to turn the tide after a dismal start to 2023.” “Load shedding, supply disruption, and currency weakness continue to stymie firms and have an impact on demand,” he said.

“Progress on these issues would undoubtedly benefit South African businesses in the latter part of this year.”