By John Ikani
South Africa’s private sector suffered a contraction in economic activity for the third consecutive month in May, according to a survey released on Monday.
The persisting challenges of rolling power cuts and inflationary pressures continued to weigh heavily on businesses.
The latest data from the S&P Global South Africa Purchasing Managers’ Index (PMI) revealed a decline to 47.9 in May, marking the lowest level since July 2021.
The drop follows April’s reading of 49.6. It’s worth noting that a reading above 50 indicates growth in activity.
David Owen, an economist at S&P Global Market Intelligence, highlighted the negative impact on customer demand, stating, “After a promising, albeit slight, uplift in new business during April, customer demand was back in negative territory, adding to a steep and accelerated drop in output.”
Owen further pointed out that companies faced significant inflationary pressures caused by the weakness of the rand, high electricity costs, and elevated wage pressures.
Adding to the economic concerns, South Africa’s state power utility, Eskom, issued a warning about potentially increasing power cuts to an unprecedented level this winter.
The country is grappling with its worst power crisis on record, further exacerbating the situation for businesses.
“The bleak energy outlook over the winter suggests that more companies will look for alternative electricity sources, pushing costs and customer prices even higher,” cautioned Owen.
Despite these challenges, there is a glimmer of optimism among firms, as they reported an improvement in supply chain challenges.
