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South Africa's private sector contracts in May as firms await reforms – PMI

5th June 2019

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South African private sector activity returned to contraction in May as new orders fell and exports retreated for a fourth month, a survey showed on Wednesday, another sign of weak demand in a troubled economy.

IHS Markit's Purchasing Managers' Index (PMI) slipped to 49.3 in May from 50.3 in April, with three out of the five main sub-indices showing a contraction.

Output, new orders and supplier delivery times all came in below the 50-point mark separating expansion from contraction.

"Demand was partly affected by the election, although panel members also reported difficult economic conditions across the private sector," said IHS Markit economist David Owen.

Data on Tuesday showed South Africa's economy contracted 3.2% in the first three months of 2019, much more than was forecast, as agriculture, mining, manufacturing and retail all shrank amid nationwide power cuts by state utility Eskom.

The stuttering economy is set to again struggle to reach 1% annual expansion in 2019 despite President Cyril Ramaphosa's promises to woo investment, create jobs and root out corruption. Such pledges by Ramaphosa, whose African National Congress party won an election in May with the smallest majority of its 25 years in power, have helped Pretoria cling onto its last investment-grade credit rating.

"Firms are hopeful that the new government will bring some much-needed stability to the markets. Future sentiment rose to the highest for 13 months, showing that there is still confidence in the South African economy," said Owen.

Edited by Reuters

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