Economic analysis agency IHS Markit South Africa says the country’s private sector returned to growth in October as an easing of Covid-19 restrictions helped to support an ongoing recovery in demand from the worst of the downturn in May.

The agency says the Purchasing Managers’ Index (PMI) for October recorded expanded new orders and purchasing activity, while employment fell at the slowest pace since before the virus outbreak.

On a less positive note, IHS says inflationary pressures continued to build, with both input costs and output prices rising at sharper rates.

The headline South Africa PMI is a composite single-figure indicator of private sector business performance. It is derived from indicators for new orders, output, employment, suppliers’ delivery times and stocks of purchases.

Any figure greater than 50 indicates an overall improvement in the sector.

The headline PMI rose to 51 in October from 49.4 in September, back above the 50-point neutral mark for the first time since April 2019 and signalling a modest improvement in business conditions across the private sector.

In fact, the PMI has now risen in five successive months following the nadir in May, states IHS.

Central to the improvement in overall business conditions were increases in both new orders and output.

New business expanded for the first time in 28 months as customer demand improved following the easing of Covid-19 restrictions, IHS elaborates.  

The pandemic continued to impact on new export orders, which decreased again. That said, the reduction in new business from abroad was the softest since before the pandemic hit.

Business activity increased for the first time in a year-and-a-half, and to the greatest extent since December 2016. As was the case with new orders, anecdotal evidence suggested that looser restrictions supported growth.

Although job cuts continued at the start of the final quarter of the year, the pace of reduction in employment slowed to the weakest for seven months.

The rate of depletion in backlogs of work also softened. While spare capacity remained evident across the private sector, reports of material shortages reportedly led to delays in the completion of orders at some firms.

Issues with the supply of materials, which were particularly acute for steel, contributed to delays in supply chains and higher purchase costs, IHS reports.

The agency further explains that purchase prices increased at a sharp pace during October, while panellists reported that currency weakness was also a factor in the higher costs.

Companies responded to input price inflation by raising their own selling charges, and to the greatest extent since February.

Improving demand encouraged firms to expand their purchasing activity for the second month running, feeding through to a first rise in inventories since August 2019.

Business confidence remained broadly in line with September's seven-month high, as hopes for an end to the Covid-19 pandemic supported optimism that activity will rise over the coming year.

“If the current recovery is to be sustained, South Africa would need to keep a second Covid-19 wave from happening. The latest data suggests that gross domestic product could grow again during the final three months of 2020,” comments IHS economics director Andrew Harker.