The Standard Bank and IHS Markit Purchasing Manager’s Index (PMI) fell to 50.4 index points in April, from 51.1 in March.
While any figure greater than 50 indicates an overall improvement in conditions, the rate of growth was only marginal.
Supporting the overall improvement was an increase in new orders, which rose for the third month in succession.
In addition, workforce numbers continued to grow in response to planned business expansions.
However, a combination of factors, including the listeria outbreak at certain food manufacturing facilities and the increase in the value-added tax (VAT) rate to 15%, caused output to slip into contraction territory, which, in turn, led to a softer overall pace of improvement.
Meanwhile, inflationary pressures built during April, with higher cost burdens fuelling stronger output price inflation.
The decline in the output subindex marginally outweighed continued increases in other major PMI subindices such as new orders, employment and stock of purchases.
“Nevertheless, our view remains unchanged that, over the near term, the PMI should continue showing signs of improving domestic business conditions supported by the improved domestic political backdrop,” said Standard Bank economist Thanda Sithole.
Sithole further noted that the recent survey for the PMI had shown a significant improvement in domestic consumer confidence, which should also provide further support to the PMI in the months ahead.
The main findings of the April survey indicated a further increase in new orders, which formed the basis for growth, with firms winning new business at a faster pace.
Further, staffing levels grew at the fastest pace observed in 16 months. Anecdotal evidence suggested planned business expansions drove the increase in employment, said Standard Bank.
However, business activity contracted for the first time in three months at the start of the second quarter.
Purchasing activity, meanwhile, remained broadly unchanged.
Any increase in buying levels caused by higher volumes of new orders was offset by the decline in production.
Elsewhere, average lead times for inputs lengthened further during April. Product shortages were commonly associated with the deterioration in vendor performance.
However, the extent to which delivery times lengthened was only marginal.
On the price front, increases in both purchasing costs and staff pay drove input inflation during April.
Notably, cost burdens rose at the fastest pace observed so far this year.
Consequently, the PMI indicated that selling prices rose again at the start of the second quarter, with a number of companies attributing the increase to higher input costs, as well as the recent VAT hike.