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S&P PMI inches to highest level in a year but business still under pressure

Businesses remained under considerable pressure from rising input costs, lifted by a surge in global fuel prices and supply-side challenges despite activity climbing to a 13-month high. Picture: Ian Hodgson: Reuters.

Businesses remained under considerable pressure from rising input costs, lifted by a surge in global fuel prices and supply-side challenges despite activity climbing to a 13-month high. Picture: Ian Hodgson: Reuters.

Published Jul 6, 2022

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South African businesses remained under considerable pressure from rising input costs, lifted by a surge in global fuel prices and supply-side challenges despite activity climbing to a 13-month high in June.

The S&P Global South Africa Purchasing Managers’ Index (PMI), released yesterday, inched higher to 52.5 points in June from 50.7 points in May, registering above the 50.0 neutral threshold for the sixth month running.

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The reading was the highest recorded in just over a year.

S&P said all five sub-components of the PMI had a positive directional influence in June, particularly the new orders index which signalled a solid upturn in sales.

According to survey panellists, the expansion was often linked to a recovery in economic conditions, especially in KwaZulu-Natal following floods earlier this year.

With sales rising, South African firms reported a modest upturn in activity during June, with the rate of growth accelerating to the strongest since May 2021.

This was mainly driven by the services sector which registered a robust expansion, contrasting with reduced output in construction and wholesale and retail.

Amid efforts to protect profit margins, companies raised their selling prices at a marked and quicker pace in June.

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The improvement in business conditions was, however, somewhat held back by inflationary pressures as a number of firms said that higher prices had led clients to reduce their spending.

Rising fuel costs were of particular concern, driving the strongest increase in business expenses since March 2014 and leading to some vendors consolidating their delivery schedules in a bid to reduce costs.

Companies also faced delays in the supply of raw materials over the month, often linked to a lack of availability, the Russia-Ukraine war and lockdowns in China.

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Panellists also noted that supply shortages and a strengthening US dollar had added to material costs, while staff wages continued to rise solidly.

S&P Global Market Intelligence economist David Owen said it was encouraging to see the South Africa PMI jump to a 13-month high in June given a number of survey respondents reported a drop in client demand due to rising price pressures.

Owen said output and new orders increased at quicker rates, driving employment growth to the strongest in a year.

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“That said, it is likely that the economy's recent pick-up could have been faster were it not for the spike in prices,” Owen said.

“As well as hitting input costs, material shortages due to the war in Ukraine and lockdowns in China are also delaying the recovery in supply chains, leaving a number of businesses without the required inputs to run at normal capacity.

“Moreover, with the Input Prices Index reaching its highest level since March 2014, the data suggests that the South African economy is facing a period of severe inflation in the second half of the year.”

Inflation in South Africa is expected to rise to 7 percent and above in June as fuel and food prices continue rising pressured by geopolitical tension and supply-chain disruptions.

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