Private sector health continues to deteriorate - PMI

Cape Town – There has been a deterioration in the health of the private sector, according to the Standard Bank Purchasing Managers' Index (PMI) for December.

The report, released on Thursday, recorded PMI at 48.4, down from 48.8 in November. This marks a decline for the fifth month in a row. The index serves as an indicator of changes in private sector business conditions, with figures above 50.0 indicate improvement.

“A reduction in business activity formed the basis for the deterioration as output fell at a strong and accelerated pace,” the report read. 

“The decline in the PMI is likely to persist in the near term amid deteriorating fiscal outlook and elevated risk of further sovereign ratings downgrades,” said Standard Bank economist Thanda Sithole.

Sithole is of the view that the private sector decline could slow down if the “governing party” works “tirelessly” to restore lost business confidence. Overall in 2017 the PMI was reported to be 49.8, higher than the 49.7 reported in 2016. This was also lower than the 50.6 average reported historically, explained Sithole.    

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“This reflects continued lack of economic optimism and generally weak domestic economic activity,” he said.

As a result of the decline, firms contracted their workforce, purchasing activities and inventories.

Output particularly fell at the fastest pace observed in 21 months. Lower demand and challenging market conditions mainly impacted output levels. Output prices also increased, due to higher cost burdens. But output price inflation eased, suggesting firms absorbed higher input costs as output prices increased, at a slower pace.

New orders also declined for a fifth month in a row, due to declining client demand and unfavourable economic conditions. New orders from abroad also contracted given the challenging political environment, according to the report. But the decline was modest, the report noted.

The lack of new work meant that firms contracted employment levels. “This marked the second consecutive month of reducing workforce numbers,” the report read. The rate of decrease in payroll numbers also accelerated compared to November.