South Africa’s private sector recorded another month of modest growth in August, supported by an increase in new orders and stronger business activity, according to a new survey released on Thursday.
The S&P Global South Africa Purchasing Managers’ Index, or PMI, rose to 50.5 in August from 50.3 in July.
A PMI reading above 50 indicates an overall expansion in business activity compared with the previous month, while a figure below 50 points to contraction.
The latest reading therefore suggests that conditions in South Africa’s private sector are improving, although the small margin above 50 shows that growth remains limited rather than strong.
New orders support business activity
One of the more encouraging signs in the August survey was an improvement in new orders.
Businesses surveyed by S&P Global reported receiving larger orders, winning tenders and seeing some improvement in sales as customers’ financial positions strengthened.
The increase in demand helped businesses raise their output for a second consecutive month. The pace of output growth was also the strongest recorded since April.
Purchasing activity increased alongside production. Companies bought inputs at the fastest rate since March, helping inventories of purchased goods rise at their quickest pace in four months.
Taken together, the figures indicate that some companies are becoming more willing to increase activity in response to improving demand.
However, the survey does not point to a broad economic surge. New orders increased only marginally, reinforcing the picture of a private sector that is expanding slowly.
Export demand remains weak
South African businesses continue to face challenges outside the domestic market.
Export sales remained just inside growth territory during August but recorded their weakest performance in three months.
That matters for an economy where international demand for goods and services can influence production, investment and employment.
It also highlights the difference between improving conditions at home and a more uncertain global environment.
South African companies remain exposed to changes in commodity demand, international trade, energy prices and wider geopolitical developments. Weakness in major overseas markets can therefore limit the benefits of stronger domestic orders.
S&P Global’s survey suggests that businesses remain aware of those risks even as activity improves.
Manufacturing picture remains more difficult
The private-sector PMI should also be considered alongside other recent indicators.
A separate South African manufacturing survey released earlier this week showed weaker conditions in the factory sector during August, with business activity falling to its lowest level this year.
The contrast is important.
The S&P Global survey covers a broader range of private-sector businesses, while manufacturing indicators focus more specifically on factory conditions. Different surveys can therefore produce different signals about the economy at the same time.
The latest figures suggest that some areas of private-sector activity are holding up better than manufacturing alone would indicate.
Businesses remain cautious about the outlook
Despite the improvement in August, companies are not assuming that stronger growth is guaranteed.
David Owen, senior economist at S&P Global Market Intelligence, said responses from businesses showed that expectations still depended on a recovery in both domestic and international economic conditions.
He said the route towards stronger growth therefore remained unclear.
That caution is reflected in the headline PMI itself. A reading of 50.5 represents expansion, but it sits only slightly above the 50-point threshold.
For South Africa, the challenge is turning small monthly improvements in business conditions into sustained increases in investment, production and employment.
Trivane View: The next test is stronger, sustained growth
South Africa’s August PMI provides a positive signal, particularly because new orders and output are moving in the right direction.
But the numbers also call for perspective.
An economy does not become significantly stronger simply because an index moves slightly above the line separating expansion from contraction.
What matters now is whether improving demand continues over several months and encourages businesses to invest, expand production and create jobs.
The weakness in export growth and the more difficult picture in manufacturing show why caution remains necessary.
If stronger orders become sustained business activity across more sectors, August could form part of a broader recovery. For now, the figures point to progress, but still modest progress.
Source: Reuters – South African private sector activity expands slightly in August, PMI shows
Facts first. Not frenzy.
