Businesses in South Africa finally get a boost
The South African private sector experienced some relief in June after load shedding finally started to ease.
According to S&P Global, South African companies signalled an improvement in the performance of supply chains in June.
S&P Global said that the improved sentiment was due to better-than-expected load shedding, lower demand for inputs, a broad reduction in shipping exports, and a general reduction in shipping delays helping vendors to cut delivery times.
The improvement was also due to a softening of cost pressures. However, these remained steep and continued to push selling prices higher.
S&P Global added that despite an improved supply picture, demand at businesses was suppressed due to elevated prices, causing a modest weakening in the health of the private sector economy.
The S&P Global South Africa Purchasing Managers’ Index (PMI) – a composite gauge designed to provide a snapshot of operating conditions in the private sector economy – increased from 47.9 in May to 48.7 in June.
This was the fourth month in a row below the neutral 50.0 mark, S&P Global said.
A drop in client demand led to a further decrease in business intakes in June, despite the pace of the contraction being more moderate than in May.
The results from the survey showed that sales in the construction services and wholesale and retail sectors dropped, whilst the industry saw an expansion.
In addition, new orders from foreign markets continued to drop amid weak global economic conditions,
The lower demand levels led to a further contraction in business activity in June, S&P Global said.
However, the downturn was much softer compared to May, as firms noted that reduced load shedding helped them increase their working hours and finish outstanding orders.
“South Africa’s private sector saw some relief in June as the intensity of load shedding was much weaker than anticipated after Eskom’s forecasts of a ‘winter of discontent,” David Owen, Senior Economist at S&P Global Market Intelligence, said:
Reduced load shedding also led to a pick-up in vendor performance, leading to the first reduction in average delivery times since January 2019
The reduction in lead times helped to reduce inflationary pressures in June, which remained high but softened from the prior survey.
“Indeed, the latest uptick in input prices was the slowest registered in five months, amid weaker rises in purchase prices and staff costs, plus reports of lower transport expenses.”
Wage inflation eased from its recent highs as firms reported a slight increase in employment and reduced pay pressures.
An improvement in exchange rates also helped ease inflation, the panellists said.
“The uplift in output charges was still steep though, with the rate of increase slowing only fractionally from May. Companies largely chose to pass cost rises on to their customers, with the uplift remaining broad-based by sector.”
In addition, June saw a further contraction in purchasing activity, even if the rate of the decline was minimal. Inventories held by private companies also only fell slightly.
That being said, business expectations for the future grew sharply in June and were the highest recorded for seven months, with roughly 47% of surveyees saying that they expect output to increase over the rest of the year and only 4% expecting a downturn.
“Firms were generally optimistic that economic conditions will pick up, albeit from a low base, with hopes often pinned on an easing of inflation and load shedding, as well as new clients and higher sales.”
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