South African private sector contracts: weak demand snaps seven-month Growth Streak

By: ThinkBusiness Africa

South Africa’s private sector activity contracted in October for the first time in seven months, as firms reported a renewed and sharp downturn in new orders and output, according to the latest Purchasing Managers’ Index (PMI) data released by S&P Global on Wednesday.

The headline S&P Global South Africa PMI fell to 48.8 in October, down from 50.2 in September. This dip  below the crucial 50.0 threshold, show business has contracted signaling a significant deterioration in overall business conditions.

Data from the survey points to weakening demand as the primary catalyst for the contraction.The volume of new orders fell at the fastest rate since March, with surveyed companies citing a significant reduction in customer spending power amidst an uncertain domestic economic climate.

Foreign sales also experienced a decline, marking the quickest drop in nearly a year, indicating that global demand is not compensating for the domestic slump.

Despite the severe demand-side weakness, supplier delivery times improved Firms noted reduced logistics issues and lower input demand easing pressure on vendors.

Also, input price inflation eased; moderating global price pressures, coupled with the local currency (Rand)  appreciation up 7% against the US Dollar year-to-date, contributed to a gentler increase in purchase prices.

Business Confidence remained positive, with 34% of firms expecting activity to rise over the next 12 months. However, this sentiment is still relatively subdued, only slightly better than the 50-month low recorded in September, highlighting that while firms see an eventual recovery, they remain highly concerned about the near-term economic path.

The data confirms that despite infrastructural and logistical improvements—which were a major headwind earlier in the year—the core issue for South Africa’s private sector remains the constrained consumer and business spending environment.

In the second quarter of this year  South Africa’s trade surplus contracted to R177.1 billion ($9.57 billion) from R211 billion ( $11.41 billion) in the first three months of the year, as the value of goods exports decreased more than that of imports.

The main culprits for this decline were a decrease in exports of base metals, such as iron and steel, and vehicles. The decrease was due to lack of demand.