[ad_1]
Business conditions in South Africa saw another drop in July, with consumers warned that prices may start ticking upwards as a result.
The S&P Global South Africa Purchasing Managers’ Index (PMI) – a figure to understand operating conditions for private companies – declined from 48.7 in June to 48.2 in July, remaining below the neutral 50 mark.
S&P Global said that the slump in business conditions was mainly due to major contractions in activity and new business.
It noted that the decline in new business was the fastest seen since the beginning of the year, as declining household finances and weak business confidence impacted overall demand.
Additionally, the rising fuel prices and a weak currency continued to drive input costs higher in July, as the rate of inflation also quickened slightly – despite the rand strengthening against the US dollar over the month.
The increased costs were then passed on to consumers, with output charges rising significantly.
“South African businesses continued to suffer from a slump in order book volumes in July, marking the ninth contraction in the past 11 months and the fastest since January. Inflationary pressures, weak confidence and capacity constraints were all highlighted by firms as driving customer demand lower, resulting in the headline PMI posting in contraction territory for the fifth month running,” David Owen, Senior Economist at S&P Global Market Intelligence”, said.
South African companies said there was a decline in demand in July as customers cut their spending due to increased prices.
Firms also said that there was a drop in orders from clients due to heightened load shedding. That said, there was a modest pick-up in foreign sales.
Overall, total new business inflows dropped by their sharpest rate since January, primarily due to the service sector.
Output thus declined at a solid rate at the start of Q3 2022, and S&P said that all four sectors covered by the survey registered a contraction.
Some firms highlighted that load shedding limited their capacity, which led to a renewed rise in outstanding work – the highest level since August 2022.
The decline in new orders also forced firms to reduce their headcount – the first drop since April. Although the cut was marginal, it was the quickest since February 2022.
Firms added that there was a solid rise in staff costs as salaries were raised due to inflation.
In addition, purchasing activity was also down in July, despite the rate of decrease being softened as firms kept their stock levels down.
Looking more positively, lead times were mainly stable after improving for the first time in four years in June.
Although there has been a sustained downturn in business conditions, firms were generally more positive about activity over the next 12 months, as the degree of confidence reached its highest level since October 2022.
“In fact, just over half of all survey respondents expect output to grow, although this was often based on hopes that the economy will start to recover,” S&P said.
Owen also noted that a strengthening of the rand against the US dollar did help to ease cost burdens at some companies.
“Nevertheless, a further sharp increase in selling prices signals that customers could face additional pain at a time of already weakened finances, adding even greater gloom to the demand outlook,” he warned.
Read: Business activity in South Africa takes a hit as trucks come under fire
[ad_2]
Source link