South Africa’s private sector stabilises at start of 2026 as PMI returns to neutral

South Africa’s private sector showed early signs of stabilisation in January after a difficult end to last year, with the S&P Global South Africa Purchasing Managers’ Index (PMI) returning to the neutral 50.0 level, indicating unchanged business conditions from December.

The reading marked a modest improvement following a challenging fourth quarter in 2025, during which operating conditions weakened steadily. This is in line with the Absa Purchasing Managers’ Index (PMI) recording a sharp improvement of 8.2 points in January but remained just below the neutral 50-point mark. 

According to S&P Global on Wednesday, the January outcome reflected more stable demand conditions, easing inflationary pressures and a levelling off in output after a sharp contraction in December.

The PMI is a composite indicator tracking activity across the private sector, with readings above 50 signalling improvement and those below 50 pointing to deterioration.

January’s reading suggests the economy has entered 2026 on a steadier footing, although momentum remains fragile.

Survey data showed new business volumes were broadly balanced, with firms reporting a slight uptick in demand compared with the end of last year.

Some companies cited larger sales volumes and the acquisition of new clients. However, these gains were partly offset by continued weakness in the services sector and a decline in export demand, highlighting uneven recovery dynamics across industries.

Business activity also stabilised in January, ending the steepest monthly decline in output recorded in 11 months during December.

Firms responded cautiously to the tentative improvement in demand by marginally increasing their purchases of raw materials and components, marking the strongest rise in input buying in four months, albeit from a low base.

Despite the slight recovery in purchasing activity, supply-side constraints re-emerged, with firms reporting renewed delivery delays. According to respondents, port congestion resurfaced, while weaker supplier activity also contributed to longer lead times.

As a result, delivery times lengthened for the first time in ten months, ending a prolonged period of improvement seen through much of 2025.

The disruption in supply chains led to a further drawdown in inventories, as firms struggled to replenish stocks at the desired pace.

At the same time, companies continued to reduce outstanding workloads, with backlogs of work declining for the fourth consecutive month. This trend suggests that spare capacity remains elevated in the private sector.

Reflecting this slack, employment levels declined in January for the first time since September 2025. While the pace of job losses was modest, some firms opted to retrench staff or pause hiring, citing subdued order books and cautious demand expectations.

On the price front, the survey pointed to a welcome easing in inflationary pressures at the start of the year. Although firms reported faster increases in wage costs, these were partly offset by a stronger exchange rate, which helped reduce the cost of imported inputs.

Overall input price inflation slowed to its weakest pace in three months.

Selling price inflation also softened, with firms raising output prices at the slowest rate since October 2025. Respondents attributed the moderation to a firmer rand and competitive market conditions, which limited the ability to pass higher costs on to customers.

David Owen, senior economist at S&P Global Market Intelligence, said the January data offered “a glimmer of hope” that the private sector economy had stabilised after signalling a much softer pace of growth in the final quarter of last year.

“Inflationary pressures have eased, supporting a mild recovery in customer sales and allowing firms to stabilise activity levels,” Owen said.

However, he cautioned that continued reductions in backlogs suggested order pipelines remained subdued.

Looking ahead, business sentiment remained generally positive, supported by expectations of improved domestic economic conditions, lower inflation, rising tourism activity and improved energy supply.

Nevertheless, optimism slipped slightly from December and remained just below the long-term average.

Owen noted that risks to the outlook persist, including ongoing trade frictions and the potential impact of a stronger rand on export competitiveness, suggesting that while stabilisation may be under way, a robust recovery is not yet assured.

BUSINESS REPORT