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CAPE TOWN - The Standard Bank South Africa purchasing managers index (PMI) contracted for the first time in six months in July, according to a survey carried out in conjunction with IHS Markit, which cited a decline in output and new orders.

The PMI sank below the 50 mark separating expansion from contraction to 49.3 in July from 50.9 in June, the first time since January, with firms often commenting on weaker demand and widespread strikes. 

The survey found that companies reduced their workforce numbers amid efforts to lower costs and bring staffing levels more in line with demand. Purchasing activity also declined, which contributed to a reduction in stock levels.

The reading pointed to a contraction in the private sector after five months of expansion, as output and new orders declined amid weaker domestic and foreign demand, according to macroeconomics website Trading Economics. Also, job creation was reduced and purchasing activity dropped into contraction. 

Standard Bank economist Thanda Sithole noted that year to date the PMI had averaged 50.3 points, which is higher than the 49.8 average in 2017. “We therefore still see private sector business conditions improving this year.” 

Sithole said though somewhat cooler, consumer sentiment was still upbeat in the second half of this year. “Also, inflation is still benign, and interest rates will likely be steady and credit growth reasonable. This should support domestic demand, and boost domestic output in the second half of this year. 

“We’d, therefore, expect gross domestic product (GDP) growth of 1.7 percent in 2018. However, the downside risks remain high oil prices, an undervalued rand, and the as yet unresolved issue of land expropriation, as well as the global trade war.”

Inflationary pressures continued meanwhile, according to the survey, albeit softening slightly since June. Survey evidence suggested that rising output prices were the result of higher cost burdens, with input price inflation remaining solid.

The headline Standard Bank PMI is a composite single-figure indicator of changes in private sector business conditions. It is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases.