South Africa PMI shows fifth month of growth amid easing cost pressures

South Africa's private sector expanded for a fifth consecutive month in September, with the S&P Global PMI rising to 50.2, driven by increased output and new orders, especially from African export markets. Input price inflation eased to an 11-month low, suggesting potential further CPI decline and increasing the likelihood of an interest rate cut by the Monetary Policy Committee in November. However, employment decreased for the second month, and business confidence fell to a four-year low due to economic and political uncertainty, presenting a mixed outlook despite the overall expansion.

Analysis

South Africa's private sector exhibited a fragile expansion in September, with the S&P Global PMI edging up to 50.2, marking the fifth consecutive month of growth. This was primarily driven by an increase in output and new orders, notably supported by the first rise in new export orders since March, stemming from stronger demand in African markets. A significant positive development is the continued easing of cost pressures, with input price inflation declining to an 11-month low, a trend attributed to a more favorable exchange rate and reduced headcounts. This disinflationary impulse, with only 3% of firms reporting cost increases, has led S&P Global's analyst to suggest that CPI could decline further, increasing the likelihood of an interest rate cut by the Monetary Policy Committee in November. However, these positive operational metrics are sharply contrasted by deteriorating forward-looking indicators. Business confidence plummeted to its lowest level in over four years, with economic and political uncertainty cited as primary concerns. Furthermore, employment contracted for the second straight month, contributing to the first rise in work backlogs since August 2024, signaling underlying structural weakness despite the headline expansion.

Key Decisions for Investors

• Investors should closely monitor upcoming South African CPI releases, as further disinflation could act as a strong catalyst for a November interest rate cut, which would be a significant event for ZAR currency pairs and local fixed-income assets.
• Despite the headline PMI expansion, the four-year low in business confidence and a second consecutive month of falling employment warrant a cautious stance on broad South African equity exposure, as these metrics point to significant underlying economic and political risks.
• Consider overweighting positions in South African firms with significant export exposure to other African markets, as this segment demonstrated resilient demand growth that offset weakness from the US and Europe.
• The combination of easing input costs and improved supply chain conditions may benefit margins for select companies, but this must be weighed against the risk that extremely low business confidence could curtail future investment and expansion plans.