South Africa: PMI improves but remain in contractionary territory
Activity in the private sector remained in contractionary territory for a sixth consecutive month in January, albeit ticking closer to the 50-point threshold that separates expansion from contraction. The Standard Bank Purchasing Managers’ Index (PMI) came in at 49.0, above December’s 48.4 points. The indicator remains below the six-year long-run survey average of 50.7.
Output in January fell for the tenth consecutive month as demand remained weak. While the rate of contraction softened compared to the previous month, it nonetheless remained sharp. New business declined due to soft client demand, and new orders declined at a faster rate in January. Despite challenging business conditions, backlogs of work accumulated for the first time in eight months. Regarding price developments, output prices were raised again as higher prices for input costs drove production costs higher.
Commenting on January’s figure, Economist Thanda Sithole at Standard Bank said:
“In our view, the uptick in the private sector PMI toward the 50-point mark is in itself a positive signal and we expect continued uptick over the coming months premised on improved economic optimism following the improving domestic political backdrop and some government intervention to restoring good governance in State Owned Entities (SOEs). This combined with pent-up demand should underpin a reasonable economic recovery, although the upside is constrained by structural impediments.”