S&P South Africa PMI confidence levels soften as private sector performance stalls
South Africa's private sector economy showed signs of fragility in June, as the S&P Global South Africa Purchasing Managers’ Index (PMI) barely remained in expansionary territory.
Business confidence also fell to its weakest level in almost four years.
“The headline PMI dropped to 50.1 in June, eroding much of the growth in private sector conditions seen during May's six-month high. However, this was still a higher reading than those recorded in the first quarter, adding to estimates of a solid upturn in second-quarter GDP,” says S&P Global Market Intelligence senior economist David Owen.
The headline PMI dropped from 50.8 in May and the 50.1 in June – just above the 50-point neutral threshold.
There were mixed signals from the PMI's underlying components, as renewed declines in output and new business contrasted with an increase in stocks and a fresh rise in headcounts.
The index shows that output levels across the private sector contracted in June, marking a significant reversal from May when the growth rate hit a four-year high.
While the reduction was marginal, it represented the first decline in activity in three months, with weakness evident across all sectors except services, S&P says.
Further, new business volumes fell for the first time since March, albeit fractionally. The downturn was partly linked to continued weakness in export orders, which registered a third successive monthly contraction.
Meanwhile, South African firms displayed reduced confidence in their outlook for business activity, with the degree of optimism slipping to its lowest level in close to four years, as the proportion of firms expecting output growth fell solidly from May.
While project starts and efforts to reach new customers supported optimism, this was partly offset by concerns about domestic and foreign policy uncertainty, the index shows.
Further, employment emerged as a positive highlight in the latest data, with businesses increasing their workforces for the second time in three months. The modest rise in staffing levels was the fastest since May 2024, primarily driven by an expansion in the service sector.
“The drop in business expectations to their lowest since July 2021 shows that firms are growing increasingly nervous about the domestic and non-domestic economic outlook.
“Nevertheless, the survey data suggests that companies were still willing to expand their headcounts and store more inputs, helped by a relatively benign, albeit quickening, cost environment,” Owen says.
Additionally, supply chain performance also improved, with the second-quarter recovery in supplier conditions marking the longest period of enhancement in nearly nine years.
This improvement was attributed to reduced port disruptions and lower input demand, although the latest decrease in lead times was minimal. Input demand mainly fell in response to decreasing new order volumes.
Firms also maintained positive inventory levels for the second consecutive month, though growth momentum did slow owing to reduced buying activity.
Meanwhile, cost pressures across the South African economy intensified in June, with input prices rising at a solid pace. All sectors covered by the survey registered increases in costs, though it was wholesale and retail where inflation rates stayed the most pronounced.
Quicker inflation was driven by increases in both purchase prices and staff wages, with labour expenses notably rising at an above-average pace, S&P notes.
Despite these pressures, selling price increases remained modest in June, as firms balanced the need to pass on rising costs with increased competition.
Some reports also indicated that greater strength in the rand led some firms to cut their prices, the company says.
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