Business conditions remain in the doldrums in June

Businesses continue to operate in a tough economic environment, negatively impacting employment levels, according to the IHS Markit purchasing managers index.

The June index released on Wednesday registered at 49.7, marginally higher than the 49.3 reported in May. The index measures private sector business performance. A value greater than 50 indicates overall improvement in the sector.

The latest index figure reflects a “mild deterioration” in the operating conditions of SA companies, according to the report.

“Business conditions remained challenging in June,” said David Owen, IHS Markit economist.

“Firms reflected a continuing period of difficulty in the domestic economy, as first quarter growth results showed a 3.2% annualised contraction. The offshoot impact on the rand, along with a steep rise in fuel prices, also led to a sharp mark-up in overall costs,” Owen added.

The report indicated that businesses had to deal with cost pressures from rising fuel prices, inflationary effects from electricity bills and a weaker exchange rate at the beginning of June. Staff costs increased at the quickest rate since January. Part of the cost burden was passed onto consumers.

According to the report, customers lacked purchasing power during the month given the weakening economic conditions impacting market activity. “Foreign sales also deteriorated, and to the greatest extent in three months,” the report read.

A number of firms had also reduced their workforce during June, but overall employment levels increased only marginally.

But surveyed firms remain optimistic about the future.

“The 12-month outlook for activity rose even higher in June and reached the strongest since March 2018.

“Some of this optimism was directed at the new term for the ANC government, as many hope that President Ramaphosa will quickly address concerns around Eskom, as well as implementing other wide-reaching reforms,” Owen said. 

However short-term stimulus is needed to lift businesses out of a “difficult economic environment,” he added.