SA’s business optimism has slipped to a six-month low

OPTIMISM among South African private businesses has slipped to a six-month low amid growing concerns about the intensity of load shedding in the future and its impact on demand.

This comes as South African business activity in January deteriorated the most in more than a year due to heightened and prolonged power cuts and weak economic conditions. The S&P Global Purchasing Managers’ Index (PMI) on Friday fell to contractionary territory of 48.7 points in January of 2023 from 50.2 points in December, with the impact of load shedding contributing to solid falls in activity and new orders.

The latest PMI reading pointed to the first downturn in the country’s private sector in three months, and the sharpest rate since December 2021.

This comes as South African businesses experienced one of the worst months since load shedding began 15 years ago, as Eskom implemented power cuts every day in January.

S&P said that supply chains also remained under pressure from extensive power cuts as well as reports of import delays from China, whereas falling shipping fees helped to soften input cost inflation to a 15-month low.

Business confidence remained strong but slipped to its weakest in six months, as concerns about extended load shedding programmes weighed on optimism that demand will pick up.

According to S&P, the decline in operating conditions was primarily due to a solid drop in new order volumes in January, the fastest registered in just over a year. S&P said that firms that saw a fall in demand often linked this to weak client activity due to load shedding and generally poor economic conditions both domestically and worldwide – export orders decreased for the third month running.

David Owen, a senior economist at S&P Global Market Intelligence, said that of the four main sectors covered by the survey, new business declined in industry, construction and wholesale and retail, while services registered a slight upturn.

Owen said the economy suffered a fresh downturn at the beginning of 2023, driven by a stronger decline in new business inflows that was the most marked in just over a year.

“New orders slumped due to another round of load shedding, according to survey respondents, which also caused further disruption to supply chains and curtailed business activity,” Owen said.

“The high inflation environment and related economic weakness also contributed to the latest downturn, although there were persistent signs that price challenges are easing.”

Data from the S&P PMI concurred with the Absa PMI, which, during the week, showed many respondents were still flagging intense stages of load shedding as holding back production and new sales orders dipping lower in January.

However, S&P said there were some positive findings from the latest survey data, most notably on prices.