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Growth in SA private sector continues - index

Apr 05 2018 14:28
Carin Smith

Cape Town - There has been a continued modest improvement in the health of the South African private sector in March as indicated by the latest Purchasing Managers' Index (PMI) from Standard Bank and IHS Markit released on Thursday.

The Standard Bank PMI is an economy-wide survey, covering manufacturing, mining, services, construction and retail.

The March Standard Bank PMI registered 51.1, slightly down from 51.4 in February. So far this year the PMI has averaged 50.5 compared to 50.8 over the same period last year.

Thanda Sithole, economist at Standard Bank, told Fin24 that PMI values above the 50 neutral mark indicate net improvement in domestic business conditions, whereas values below 50 indicate a deterioration. At 50, business conditions could be interpreted as unchanged.

The latest PMI shows that overall business activity increased for the second month in a row as client demand strengthened. The rate of expansion was only modest and softened from February.

Firms reported a further increase in total new business during March. New investments coupled with stronger client demand led to expansions, according to panel members. The increase in new orders in March was, however, less than in February.

Firms reacted to the higher volumes of new business by expanding their workforce in March. Job creation was at a seven-month high, the index reflects.

At the same time, the index shows that inflationary pressures continued. It was mostly driven by higher input costs caused by both higher purchase and staff prices as factors. Rising fuel costs and unfavourable exchange rates drove purchase prices, whereas increased overtime was the main factor behind higher average wages or salaries.

Consequently, average selling prices rose at a faster pace – the fastest in 2018 so far. The rate of output price inflation also increased at the end of the first quarter.

According to Standard Bank, the weak economic environment in key local trading partners caused foreign sales to decline again at the end of the first quarter.

Supplier delivery times lengthened for the fifteenth month in a row. Panel members commented that stock shortages had hindered supplier performance.

“The economy-wide PMI should continue to reflect signs of improving domestic business conditions over the near term. This is premised on the improved political landscape alongside positive interventions in state-owned enterprises to restore good governance, cabinet renewal in key government positions and recently the Moody’s decision to preserve SA’s investment grade rating and change the rating outlook from negative to stable," said Sithole.

"The recent 25 basis point interest rate cut by the SA Reserve Bank (SARB) should provide further impetus to domestic demand. All PMI sub-indices remained in expansionary territory with employment at 51.2 followed by, output recording 51.0 and new orders at 50.9.” (Standard Bank)

Absa PMI

The seasonally adjusted ABSA Purchasing Managers’ Index (PMI) - looking mainly at the manufacturing sector - released earlier this week, dropped back below the neutral 50-point mark in March after encouraging improvements during the first two months of the year.

The index shed 3.9 points to reach a level of 46.9 in March from 50.8 in February. The key drivers of the headline ABSA PMI fall were sharp declines in the business activity and new sales orders indices, while inventories continued to decline. The business activity index fell by 8.1 points to 46.0, while new sales orders declined by a similar margin to reach 44.5 in March.

Respondents indicated that exports declined during the month which, according to ABSA, could explain the deterioration in overall sales orders. ABSA pointed out that exports could have been affected by the recent stronger rand exchange rate, which can weigh on competitiveness of local goods in international markets.

The dip in demand, in turn, filtered through to lower activity levels. The inventories index fell further below the neutral 50-point mark to 41.4 – the lowest level since April 2017.

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absa  |  standard bank  |  sa economy  |  inflation  |  pmi


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