Business conditions in South Africa continue to deteriorate, with activity in the private sector decreasing further amid lower client demand, Standard Bank and IHS Markit's latest Purchasing Managers Index (PMI) revealed on Monday.
The index was recorded at 49 points in January, only marginally higher than the 48.4 points recorded at the end of 2017, and remaining below the 50-point mark for the sixth consecutive month.
"Firms also continued to struggle to win new business, with new orders from domestic as well as foreign clients [having declined]. As a result, purchasing activity contracted," the report noted.
However, employment rose for the first time in three months as companies enrolled more people into training schemes.
On the price front, inflationary pressures eased compared with the end of 2017.
Standard Bank economist Thanda Sithole noted that, although the decline was at a slower rate, the reading was lower than both the 51.3 posted in January 2017 - which was a fall from an expansionary territory, whereas the latest print is an uptick from contractionary territory - and the 49.8 average for 2017.
"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 restore good governance in State-owned entities.
"This, combined with pent-up demand, should underpin a reasonable economic recovery, although the upside is constrained by structural impediments," he pointed out.
The January PMI data indicated that most subindices remained below the 50-point mark, separating expansion from contraction.
Output fell for the tenth month in succession, contributing to the deterioration in business conditions. Although the rate of contraction softened from the previous month, it remained solid. The fall was linked to lower underlying demand amid fragile economic conditions.
Amid reports of weak client demand, new business declined for the sixth month running.
Further, the rate at which new orders reduced quickened from December. This led purchasing activity to contract as firms waited for new projects and work.
Work-in-hand began to accumulate in January, as backlogs increased for the first time in eight months.
Cost inflationary pressures also continued in January, with purchase prices and staff pay increasing. However, the rate of total input price inflation was modest, having eased from the previous survey period.
Lastly, higher cost burdens led firms to increase their average selling prices again in January.
"That said, the rate of growth was only marginal, with data suggesting that firms partially absorbed higher input costs," said Sithole.