POST Online Media Lite Edition


South Africa PMI reveals economic fragilities as government loses popularity

Christian Fernsby |
While the economy has emerged from a recession that mired business sentiment last year, PMI surveys suggest that official data will likely show only modest second quarter growth after only a marginal first quarter expansion.

Furthermore, an escalation of US tariffs on Chinese exports may feed through into a decline in South African exports.

The IHS Markit South Africa PMI covers a representative sample of 400 private sector companies operating in South Africa.

A reading above 50.0 signals growth in the private sector, whereas a reading below 50.0 signals a deterioration.

Historically, a reading of 50.0 correlates with approximately 1.4% annual GDP growth.

The track record of the survey suggests that the PMI needs to drop to 46.9 to signal a contraction of the economy on an annual basis.

For eight out of the last ten months, the headline PMI has registered below 50.0, albeit only signalling a contraction of the economy for one month (October 2018).

The latest survey data for April registered only a slight improvement in business conditions.

As such, growth in the first half of the year will likely be modest at best.

The PMI points to very weak annual growth in Q1, with official figures not released until June.

More encouragingly, April data suggests that growth has picked up in the second quarter, albeit remaining subdued.

The weakness of business activity earlier this year was driven firstly by weak demand in light of a domestic recession and increasingly sluggish global trade growth via US tariffs on Chinese goods.

This fed through into weak demand for South African metal exports from Chinese customers.

Panellists also pointed to frequent power cuts towards the end of the first quarter, restricting sales and output levels.

The nation's power supplier, Eskom, has implemented multiple rounds of load shedding as it struggles with excess demand.

What to read next

Global manufacturing PMI at nine-month low in May
Global PMI ends 2017 at near seven-year high
Manufacturing conditions in Japan improved