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The Standard Bank Purchasing Managers' Index (PMI) has recorded a decline for the fifth month in a row. The Index, which serves as an indicator of changes in private sector business conditions, showed rapidly falling output — at the fastest rate in 21 months — and decreasing new business.

Private sector business shows rapid decline“A reduction in business activity formed the basis for the deterioration as output fell at a strong and accelerated pace,” the report states. “The decline in the PMI is likely to persist in the near term amid a 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,” Standard Bank economist Thanda Sithole adds.

Companies shrunk their workforce, purchasing activities and inventories as a result of the decline, the PMI found, but output prices increased due to higher cost burdens. Output price inflation eased, suggesting that businesses absorbed higher input costs as output prices increased, at a slower pace.

New orders also declined for a fifth month in a row, due to declining client demand and unfavourable economic conditions. New orders from abroad contracted given the challenging political environment, according to the report, but the decline was modest.

Private sector businesses reacted to falling workloads by contracting their capacity further, with employment and purchasing activity being reduced. “This marked the second consecutive month of reducing workforce numbers. The rate of decrease in payroll numbers also accelerated compared to November,” the report states.

Despite these conditions, the PMI indicates that companies were still able to work through their outstanding business as backlogs continued to decline. However, suppliers’ delivery times lengthened further due to delays at certain ports and product shortages. In addition, higher purchase costs led to an increase in cost inflationary pressures, largely attributed to higher raw materials costs and unfavourable exchange rates.

PMI figures above 50.0 indicate improvement, which economists say is unlikely over the next few years. According to Trading Economics global macro models and analysts expectations, South Africa’s composite PMI is expected to be around 49.71 by the end of this quarter, 49.84 in 12 months time, and 49.84 in 2020.

Image credit: https://www.linkedin.com/in/thanda-sithole-20724055/

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