The Standard Bank Purchasing Managers’ Index (PMI) on Wednesday showed private sector business activity in South Africa declined for the third successive month in June, with the rate of contraction accelerating the fastest since April last year.
The bank said its data showed the PMI slowed to 49 points last month, down from the 50.2 points in May, charging that this could be attributed to a reduction in the volume of incoming new business for the first time since October last year.
It said new export orders declined for the eighth consecutive month.
Standard Bank forex strategist Shireen Darmalingam said it was worrying that four sub-components of the PMI recorded negative contributions last month which marked the sixth consecutive monthly decline in the index.
“The employment sub-component reflected the largest decline in June, followed by output and new orders. Stocks of purchases also fell, although its subtraction from the overall index was more muted in June. We expect the index to remain pressured as the SA economy battles with low business confidence and slow economic activity as reflected in the recent recessionary quarter one GDP data,” Darmalingam said.
The PMI is a composite index calculated as a weighted average of five individual sub-components.
The bank said inflationary pressures in the private sector remained weak last month, despite strengthening slightly compared with May. Input and output prices rose at the fastest rates in four and five months respectively, albeit ones that were still among the weakest seen over the survey history.
On Monday, the Absa manufacturing PMI also plunged to 46.7 points last month from 51.4 points recorded in May, largely due to sluggish new order sales and lower business activity. Absa's PMI business activity index eased to 45.4 points last month from the 52.3 points recorded in the previous month.
Steel and Engineering Industries Federation of South Africa (Seifsa) senior economist Tafadzwa Chibanguza said the fundamentals of the South African economy remained too weak to support the manufacturing sector.
“At a deeper glance, this weakness is a function of a weak economy. This was also very evident in Seifsa's first-quarter review of the metals and engineering sector, wherein those sub-industries with lower export-to-output ratios and more reliant on the domestic economy for orders performed the worst and, in fact, contracted in all instances," Chibanguza said.
“Unfortunately, the stronger rand in June would not have contributed any upside to export prospects, hence the broad deterioration in the PMI indices. Manufacturers would have faced headwind at home from a slowing economy which is in a technical recession and outside of its borders because of a stronger rand.”