SA private sector sees growth as third quarter ends on a high note

Data from the S&P Global South Africa Purchasing Managers’ Index (PMI) released yesterday indicates that business activity expanded for the first time since August 2023. Picture: Timothy Bernard Independent Newspapers

Data from the S&P Global South Africa Purchasing Managers’ Index (PMI) released yesterday indicates that business activity expanded for the first time since August 2023. Picture: Timothy Bernard Independent Newspapers

Published Oct 4, 2024

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The South African private sector economy is on a recovery trajectory, buoyed by a substantial rise in new work intakes during the third quarter of 2024.

Data from the S&P Global South Africa Purchasing Managers’ Index (PMI) released yesterday indicated that business activity expanded for the first time since August 2023, showcasing a collective boost in demand conditions and the first reduction in selling charges in more than four years.

David Owen, senior economist at S&P Global Market Intelligence, noted that the upswing in the PMI data offers reassurance about the improving health of the South African economy.

The PMI rose to 51.0 in September, up slightly from 50.5 in August, marking an encouraging trend above the neutral mark for two consecutive months. Owen described this growth acceleration as the most significant in over two years.

“The average PMI for the third quarter stands at 50.3, reflecting a shift towards positive business conditions for the first time since the fourth quarter of 2022. This is a promising signal for GDP growth in forthcoming official statistics,” he stated.

The PMI’s increase was largely attributed to enhancing sales figures, especially within the wholesale and retail sector, enabling businesses to ramp up output.

Notably, the recent softening of input cost inflation, owing to favourable exchange rates, provided additional optimism.

A strengthened rand against the US dollar, alongside a notable US interest rate cut and a stimulus package from China, is believed to have bolstered South African mining exports, potentially leading to lower import prices and, consequently, subdued consumer price inflation.

The survey results revealed that companies were experiencing the first drop in average selling prices since mid-2020, suggesting a shift towards more competitive pricing and greater demand.

“The drop in selling charges can help stimulate demand, setting up the private sector for a robust end to 2024,” Owen added.

However, the recovery remains uneven. While the wholesale and retail sectors reported gains, activity in other sectors, including manufacturing and construction, continued to contract, albeit at manageable rates.

Additionally, businesses have shown a reluctance to hire as staff numbers were cut for a fourth month in a row, coupled with ongoing supply chain challenges exacerbated by port delays, particularly at the port of Durban.

Professor Raymond Parsons from the North-West University Business School provided further insight into the economic landscape, stating that while the report reflects positive trends, South Africa was still in the early stages of recovery.

“Economic growth for 2024 is projected to be around 1%. Although we are optimistic about a GDP growth forecast of 1.8%-2% for 2025, there is much work ahead for both government and the private sector to sustain this recovery,” he noted.

Looking forward, the PMI indicated a reasonably optimistic outlook amongst local firms, with confidence remaining above the long-run average.

Factors contributing to this optimism included expectations of improved sales, a stable energy supply, lower inflation, and increased government spending, suggesting a hopeful horizon for the South African economy.

BUSINESS REPORT