South African businesses have faced a challenging start to 2024, but many are expecting the operating environment to improve.
The S&P Global South Africa Purchasing Managers’ Index (PMI) – a composite gauge giving a snapshot of operating conditions in the private sector economy – increased slightly from 49.0 in December 2023 to 49.2 in January 2024 – still below the neutral mark of 50.
South African businesses reported a decrease in new business for the ninth month in a row, with the pace of decline the sharpest seen in a year.
Survey panellists highlighted the weak economic conditions and reduced client spending power.
New orders from abroad also dropped, with firms citing the worsening global demand and shipping disruption led to a drop in sales.
“As well as weak demand, businesses faced further headwinds on the supply side, largely due to the Durban port crisis,” S&P Global 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.”
These factors led to a solid contraction in business activity in January, the fifth monthly decrease in a row.
However, the reduction rate softened slightly from December, partly due to an uptick in services output.
Looking more positively, the latest survey did show some positives regarding inflation, especially the slower rate of increase in purchase costs for the sixth month in a row and the weakest growth since December 2020.
“A slowing of input cost inflation meant that output prices rose only modestly, which suggests that clients should start to see some relief in prices. This turnaround has given firms greater optimism that 2024 will deliver a better year for the private sector,” David Owen, Senior Economist at S&P Global Market Intelligence, said
Moreover, wage costs grew slightly and to the most minor extent in the last two years, as weaker demand hurt hiring and salary pressure.
This meant that selling charges were only raised at a moderate pace in January, with the rise similar to those seen in the preceding two months.
Purchasing activity was also near to being stable in January, only seeing a slight drop and to the smallest extent for five months. This was linked to greater restocking efforts from firms, which offset reduced purchases at some companies.
Businesses also acted to soften the rate of job cuts in January, which resulted in employment falling only fractionally and at the slowest pace for three months. While some firms saw a drop in staff numbers due to decreased workloads and financial issues, others filled in previously vacated roles.
Finally, businesses were upbeat primarily about activity and demand trends in 2024, with many predicting an improvement in economic conditions that could drive company expansion. The degree of positivity rose to its highest since July 2023.
“This confidence encouraged more stable trends in purchasing and employment, which signals that firms are willing to spend more in the hope of a near-term recovery,” Owen said.