South Africa: PMI points to a further deterioration in private sector business conditions in December
Activity in the private sector remained in contractionary territory for a fifth consecutive month in December. The Standard Bank Purchasing Managers’ Index (PMI) came in at 48.4, below November’s 48.8 print. The indicator therefore fell further below the 50-point threshold that separates expansion from contraction, and below the six-year long-run survey average of 50.7.
December’s print reflected a decline in output, total new orders and new business from abroad. A drop in business activity due to muted client demand and a deterioration in business conditions were largely behind the decline in output, which contracted at the fastest pace in 21 months. New business from abroad also declined in December largely due to heightened political uncertainty in anticipation of the ANC National Congress, which took place on 16–20 December. Weak demand resulted in a steep drop in employment, purchasing activity and inventories. Regarding price developments, output prices rose as firms passed on higher input costs to consumers.
Commenting on December’s figure, Economist Thanda Sithole at Standard Bank said:
“The decline in the PMI is likely to persist in the near term amid deteriorating fiscal outlook and elevated risk of further sovereign ratings downgrades. However, further declines in the private sector PMI could potentially be averted should the governing party work tirelessly to restore lost business confidence.