March 4, 2020 / 7:24 AM / a month ago

South African private sector activity slips again in February

JOHANNESBURG (Reuters) - South African private sector activity remained in contraction in February as businesses cut jobs due to weak demand and rising costs, and the coronavirus outbreak in China stalled trade between the two countries, a survey showed on Wednesday.

IHS Markit’s Purchasing Managers’ Index (PMI) edged up marginally to 48.4 from 48.3 in January, remaining below the 50 level that separates expansion from contraction, as the sub-index measuring employment fell at a record rate.

South Africa has struggled to emerge from a deep slump in the two years since Cyril Ramaphosa became president with the promise of enacting sweeping economic reforms.

The economy entered its second recession in two years in the final quarter of last year, data showed on Tuesday.

The unemployment sub-index registered a fourth consecutive months of contraction, to 46.7 in February from 48.3 in January. That marked the fastest drop in employment since the reading began in its current form in July 2011.

“With new orders falling again and cost inflation accelerating, many South African businesses decided to cut into payroll numbers in February,” said David Owen, an economist at IHS Markit.

Owen added that the coronavirus outbreak had started to have a notable impact on the South African economy, with the shutdown of factories in China leading to a steep lengthening of input delivery times.

“Port congestion ...meant that many businesses were forced to limit activity, with exports to China also decreasing,” Owen said.

The coronavirus outbreak was plunging the world economy into its worst downturn since the global financial crisis, the Organisation for Economic Cooperation and Development warned on Monday, urging governments and central banks to fight back to avoid an even steeper slump.

On the price front, respondents said that a weaker rand and delays in Chinese imports often led to inflated purchasing costs, IHS Markit said.

“Firms commented that slower freight shipments and rising port congestion meant that inputs often took longer to arrive. As such, vendor performance deteriorated at the sharpest rate in over five-and-a-half years,” IHS Markit said in a statement.

Reporting by Olivia Kumwenda-Mtambo; editing by John Stonestreet

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