PMI drops on the back of listeria outbreak and VAT hike

Johannesburg – The impact of the recent listeria outbreak, labour strikes and a VAT hike contributed to a dip in the purchasing managers' index, the latest PMI data from Standard Bank released on Friday showed.

The headline Standard Bank PMI which is an indicator of changes in private sector business conditions, dipped from 51.1 the previous month to 50.4 in April.

"The latest PMI figure posted 50.4, down from 51.1 in March," said a statement.

“The slowdown in April’s PMI was largely driven by the output sub-index which fell into contraction territory, which is below the 50-neutral mark, as a result of the listeria outbreak, recent labour strikes and a VAT hike, from 14% to 15%,” said Thanda Sithole, economist at Standard Bank.

The VAT increase came into effect on April 1, the first upward adjustment in post-apartheid South Africa.

The PMI is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases. Any figure greater than 50.0 indicates overall improvement in conditions.

Although the headline reading signalled a sustained improvement in the health of the South African private sector, the rate of growth was only marginal.

• READ: PMI rises as private sector conditions improve

Sithole said the bank held the view 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.”

According to the bank, business activity in the private sector contracted for the first time in three months during April.

The rate of decline was solid and faster than the average observed across the series since July 2011.

However, companies in the private sector recorded a higher level of new business during April, marking the third consecutive month of expansion.

The private sector also recorded an increase in workforce numbers during April, extending the current sequence of growth to four months. This level of growth was last seen in December 2016.