The latest Purchasing Managers’ Index (PMI) data published by S&P Global South Africa shows an improvement in the performance of supply chains in the first half of the year, particularly towards the end of June.

S&P Global South Africa attributed the improvement in the PMI to 48.7 in June, from 47.9 in May, to less-severe-than-expected loadshedding, lower demand for inputs and a broad reduction in shipping and delivery delays.

However, despite the improved supply picture, elevated prices continued to suppress demand at businesses, leading to a modest deterioration in the overall health of the private sector economy.

The drop in client demand fed through to a further decrease in new business intakes in June, although the pace of contraction was moderate and slightly weaker than in May.

The latest PMI survey results showed that sales declined in the construction, services and wholesale and retail sectors, whereas industry recorded an expansion.

New orders from foreign markets continued to fall amid weak global economic conditions.

Lower demand levels translated into a further contraction in business activity across South Africa in June.

That said, the downturn was much softer in comparison with May as firms highlighted that reduced stages and hours of loadshedding helped them to increase their working hours and finish some outstanding orders.

Improved power supply also contributed to a pick-up in vendor performance, leading to the first, albeit slight, reduction in average delivery times since January 2019.

The drop-in lead times helped to curb inflationary pressures in June, which remained marked but softened from the previous survey. Indeed, the latest uptick in input prices was the slowest registered in five months, amid weaker rises in purchase prices and staff costs, as well as lower transport expenses, reportedly.

S&P Global South Africa further explained that wage inflation eased from its recent highs as firms reported only a slight increase in employment and reduced pay pressures.

An improvement in exchange rates was also cited by panellists as helping to ease inflation.

The uplift in output charges was still steep, however, with the rate of increase slowing only fractionally from May. Companies largely chose to pass cost rises on to their customers, with the uplift remaining broad-based by sector.

Meanwhile, the latest survey data showed a further contraction in purchasing activity in June, although the rate of decrease was only slight. Concurrently, inventories held by private sector firms fell only marginally.

Business expectations for future activity picked up sharply in June and were the highest recorded for seven months.

Around 47% of the survey panel expected output to increase over the coming year, contrasting with just 4% that predict a downturn.

Firms were generally optimistic that economic conditions would pick up, albeit from a low base, with hopes often pinned on an easing of inflation and loadshedding, as well as new clients and higher sales.

S&P Global market intelligence senior economist David Owen said, ultimately, rising output prices continued to harm client demand as businesses and households limited spending in the high inflation environment. The energy outlook improvement noted in the PMI did, nonetheless, signal hopes that the current period of economic weakness would start to dissipate soon.  

The S&P Global South Africa PMI coincides with the Absa PMI, in that Absa finds weak demand is persisting in the private sector, however, there has been an uptick in forward-looking sentiment, meaning conditions may be better by the end of the year.