South African private sector treads water in June, confidence slips, PMI shows

South African private sector activity recorded only marginal growth in June, with the S&P Global PMI slipping to 50.1, while business confidence significantly declined to a nearly four-year low. Despite some positive trends in employment and supply chain performance, the survey indicated a contraction in output and new orders, driven by persistent weakness in export orders. This sharp drop in business optimism reflects increasing nervousness among firms regarding both domestic and international economic prospects.

Analysis

South Africa's private sector activity neared stagnation in June, with the S&P Global PMI slipping to 50.1 from 50.8 in May, indicating only marginal growth. This headline figure masks a deteriorating outlook, as business confidence plunged to its lowest level since July 2021, reflecting deep-seated nervousness about both domestic and international economic prospects. The weakness is substantiated by a contraction in private-sector output for the first time in three months, a sharp reversal from May's four-year high growth rate. Furthermore, new business volumes fell for the first time since March, driven by a third consecutive monthly decline in export orders. In contrast, the labor market showed resilience, with employment rising at the fastest pace since May 2024, led by the service sector. Supply chain performance also improved for the longest period in nearly nine years, a benefit of reduced port disruptions and softer input demand, the latter of which reinforces the theme of weakening economic activity.

Key Decisions for Investors

• Adopt a cautious stance on South African equities, as the sharp decline in business confidence to a near four-year low and contracting new orders signal a heightened risk of economic slowdown.
• Investors should consider underweighting exposure to export-oriented companies given that export orders have now contracted for three consecutive months, while monitoring the relative resilience of the domestic services sector which is currently supporting employment.
• Pay close attention to upcoming PMI releases for a potential dip below the 50.0 contraction threshold, as the current 50.1 reading provides virtually no buffer against further weakening in output and new business volumes.