PMI shows private sector business confidence remains weak

ONFIDENCE levels among private-sector business people remains weak amid muted demand and sharp increases in input costs due to rand weakness, forcing job losses.

 

This is according to the latest seasonally adjusted Markit/Standard Bank SA purchasing managers index (PMI) which rose from 49.1 in December to 49.6 last month, but remained below the critical 50 points level.

A level below 50 signalled deterioration in business conditions, although the slight improvement in the index suggested that conditions deteriorated at a slower pace.

Both demand and supply side PMI indicators implied sustained weakness in SA’s economy, Standard Bank economist Kuvasha Naidoo said.

Despite making imported commodities more expensive and raising input costs, the weak rand helped exports stabilise last month. Input costs saw the steepest increase in five months.

"The increase in input costs … is negative for producers’ margins, especially for producers that supply to the domestic market; we anticipate SA will fall further into a downward phase of the business cycle in 2016 and that rising producer costs will not be easily passed onto consumers," Ms Naidoo said.

The PMI is a survey of 400 private-sector executives, canvassing their views about business conditions including new orders, employment and input prices.

Although SA’s private-sector firms reported a ninth consecutive monthly fall in output last month, the pace of decline slowed substantially since December and was only marginal overall.

New business also fell slightly as a difficult economic environment continued to act as a barrier to growth, the bank said.

A lack of new orders resulted in a further decline in work outstanding in last month, signalling spare capacity at businesses. This resulted in job losses, although marginal.

Some firms passed higher costs on to their clients, resulting in a further rise in average charges.