Business conditions worsen for third consecutive month - index

Businesses struggled to achieve growth at the start of the second half of the year, according to data from IHS Markit.

The IHS Markit purchasing managers index (PMI) for July was released on Monday. It measures the performance of businesses in the private sector. The index, which was below the neutral 50-mark, shows that the health of SA's private sector continued to decline in July.

The PMI for July dipped to 48.4, down from 49.7 reported in June. This is the third consecutive month that business conditions deteriorated. It was also the sharpest deterioration since November, the report indicated.

"With a surprisingly sharp downturn in South Africa GDP in the first quarter weighing on sentiment, businesses have continued to report a challenging environment across the private sector economy in July," said David Owen, economist at IHS Markit.

Consumer demand seemed to have fallen during the month, and the demand for new orders in particular declined the most in nine months. 

"Client sales reportedly eased due in part to negative GDP growth figures released in June, while some firms mentioned a lack of liquidity in the market leading to reduced buying power," the report read. The fall in demand was mostly domestic, as the decline in export orders was only marginal. "Output at South African companies contracted for the third month running and at a faster rate than in June," the report read.

Worker strikes and cost inflation in June led to lower output in July, the report noted. Hiring activity was also restrained. "Employment was cut for the first time since March and at one of the fastest rates in nearly two years," Owen added.

Firms also have a negative outlook for the future, mostly attributed to the poor economic growth figures, the report indicated.

On the positive side, cost inflation in July eased from June's eight-month high, which allowed suppliers to reduce their prices.

"Weaker demand for input goods, meanwhile, led many suppliers to drop their prices, contributing to a weaker mark-up in overall cost burdens.

"Unfortunately, this appears the only good news from the latest PMI survey," Owen said.

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