Here’s why activity in South Africa’s private sector contracted sharply in March

PUBLISHED: Wed, 03 Apr 2019 16:01:32 GMT

JOHANNESBURG – (Reuters) – Activity in South Africa’s private sector contracted sharply in March, a survey showed on Wednesday, with firms citing electricity blackouts as the main drag on business.

IHS Markit’s Purchasing Managers’ Index (PMI) slipped to 48.8 from February’s 50.2 as falls in new orders and employment saw output contract by the most in four months.

The reading was below the 50-point mark separating expansion from contraction for the sixth time in seven months.

Firms surveyed said interruptions to production were mainly due to rolling electricity blackouts. South Africa was plunged into stretches of darkness lasting hours in March as faults at state utility Eskom’s coal-fired power stations squeezed supply.

“The promise shown by February’s data was quickly overturned in March … Companies squarely lay the blame at frequent power cuts due to load-shedding at Eskom, leading to lower activity for those affected,” sad IHS Markit economist David Owen.

“As a result, firms reported an unprecedented fall in selling charges, highlighting their striving to recover sales.”

Cost inflation, a measure of the growth in price of manufacturing inputs like labour, water and power, was at a record low, reflecting prolonged weak demand due to subdued consumer confidence.

Large South African retailers including supermarket giant Shoprite have indicated they are reluctant to pass on price increases to customers, instead extending discount promotions that keep store price inflation well below national rates.

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