THE OUTLOOK for private sector activity for the year ahead in South Africa has worsened markedly over inflation and supply risks in the wake of increased global uncertainty due to the war in Ukraine.
Despite this, private sector activity rose to a four-month high in March, marking the third consecutive month of expansion amid renewed increase in employment.
The S&P Global IHS Markit Purchasing Managers’ Index (PMI) accelerated to 51.4 points in March, from 50.9 in February and above the 50.0 no-change threshold.
S&P Global said yesterday that new order volumes rose in March albeit the rate of growth was down fractionally from February and marginal.
In addition, while export orders fell over the month, the rate of decline was the softest seen since September last year.
At the same time, output levels fell back into contraction territory as soaring input costs and further material shortages disrupted activity, with backlogs of work growing for the first time in four months.
On the price front, cost pressures sharpened across the South African economy in March as the war in Ukraine drove increased concerns over the supply of global commodities.
S&P Global said managers especially highlighted the surge in fuel prices, which contributed to the fastest rise in total input costs since June 2016, and leading to the quickest increase in business costs for nearly six years.
However, companies largely passed these costs onto their customers, resulting in the second-sharpest uplift in selling prices since the survey began in 2011.
With fears of high inflation persisting and increased reports of material shortages, business confidence in future activity weakened to a seven-month low.
S&P Global economist David Owen said the rise in the headline PMI masked a worsening of price and supply risks in the South African economy in March.
Owen said pricing data pointed to the second-fastest rise in output charges in the survey’s near 11-year history, as firms saw a substantial rise in costs arising from higher fuel and material prices.
“While the upsurge was largely driven by volatility in commodity markets due to the war in Ukraine, which should ease over time, it added to already sharp inflationary pressures from the pandemic which appear more persistent,” Owen said.
“Supply chains also came under increased pressure in March, with firms seeing a renewed rise in the incidence of delivery delays.
“Panellists often indicated that this was due to the continuation of zero-Covid policies in China, leading to stoppages in production and on key supply routes as lockdowns were reimplemented.
“With these headwinds on growth still at play, firms showed the least confidence in future activity since August last year.”
Looking forward, the outlook for future activity weakened to a 7-month low amid fears of persistent high inflation and supply risks.
Despite wide concerns over inflation and supply risks, Owen said sentiment remained stronger than the long-run trend, as firms continued to predict a positive impact from the lifting of Covid-19 restrictions.
BUSINESS REPORT ONLINE