Private sector expands for first time in 12 months

June 3, 2016 6:42 AM

The Standard Bank Purchasing Managers' Index (PMI), compiled by Markit, rose to 50.2 in May from 47.9 in April, climbing above the 50 mark that separates growth from contraction.

People work on machines at a clothing factory at an industrial town of Newcastle, 260 km (162 miles) southeast of Johannesburg May 8, 2013.

Activity in South Africa's private sector expanded in May for the first time in a year, a survey showed on Friday, as new orders and exports grew even though the subdued economic climate continued to curb output.

The Standard Bank Purchasing Managers' Index (PMI), compiled by Markit, rose to 50.2 in May from 47.9 in April, climbing above the 50 mark that separates growth from contraction.

The sub-index for new orders also rose, to 50.6 from 47.5 in April. That meant job creation rebounded after the largest rate of job cuts on record in April.

However, the sub-index for output, at 49.5 in May compared with 47.4 in April, showed production by companies continued to shrink, albeit at a slower pace. A third of respondents noted that input costs had risen, increasing purchasing and staff costs. The index for output last exceeded 50 in April 2015.

"The rise in the PMI was driven by new orders on the back of rising external demand as well as new clients and investments, which also had a positive impact on employment during the month," said Kuvasha Naidoo, an economist at Standard Bank.

"However, challenging economic conditions resulted in actual output remaining in contraction." South Africa's central bank expects economic growth of only 0.6 percent in 2016. It foresees inflation remaining above the upper end of its 3 to 6 percent target band as a severe drought and weak currency put pressure on prices.

"The improvement in May's PMI to above 50 points for the first time in 12 months is a welcome turning point in the data. However, more above-50-point prints will be necessary to make a trend that instills investment confidence," Naidoo said.