Business Sentiment On Economic Outlook Improves

The Absa Purchasing Managers Index (PMI) strengthened to reach 45.7 points in June, while business sentiment regarding future economic conditions has also improved.

According to the Bureau for Economic Research (BER), which released the index results on Monday, the improvement is welcomed, although this is the second consecutive month the index has remained below the 50-point mark.

Following a very strong start to the second quarter, which was also reflected in solid growth in official manufacturing production data, May and June results were poor. The PMI recorded 43.8 points in May 2024.

Despite the stable electricity supply through the second quarter, insufficient demand seems to have weighed heavily on the sectors performance. The business activity index declined further to 36.3 points in June, from 38.1 points in May.

This is very downbeat following the strong start to the second quarter. Furthermore, new sales orders remain muted, edging up to 37.9 points in June from 37.8 points in May. Many comments from respondents flag depressed demand conditions, the BER economists noted.

Export sales have been stuck below the neutral 50-point mark for four consecutive months, which suggests that the weakness is not just coming from domestic demand.

Supplier deliveries are worsening, meaning that they take longer to arrive, with the index measuring suppliers' performance increasing from 55.4 in May to 56.1 in June. Port issues are also likely to remain a concern, the economists added.

On a more positive note, the purchasing price index declined for a third consecutive month, falling to 64.5 points in June from 66.9 in May. This is the lowest reading in six months, indicating that recent signs of easing cost pressure have been sustained.

At the beginning of June, petrol prices fell by R1.24 a litre, while diesel prices fell between R1.09 and R1.19, depending on the grade.

A further fuel price decline is expected in July, which would help alleviate more pressure on costs. Further good news is that the index for expected business conditions in six months time increased to 68.1 points in June from 57.6 in May, the economists said.

This is essentially the only measure in the survey that tracks sentiment, and the significant increase bodes well. Indeed, respondents have not been this optimistic about business conditions since early 2022. The prevailing political uncertainty at the time of the survey in the last week of June should have diminished over this time period, and there could be hope that domestic and global demand could look better amid expected monetary policy easing.