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Companies slightly more positive in March

| Economic factors

Private-sector companies were slightly more optimistic about operating conditions last month than they were in February, an index showed.

 The improvement in sentiment was supported by higher new orders and increased output.

Economic growth will be supported if companies continue having a positive outlook, as this may encourage investment.

The fact that companies reported a rise in new orders, increased their buying activity and accumulated stocks of purchases could also mean they expected business activity to go up further in coming months, Markit economist Oliver Kolodseike said.

“Factors that could prevent output growth include further electricity outages, sharp cost rises and a fall in demand,” he said.

The Markit/HSBC SA whole economy purchasing managers’ index (PMI) rose from 50 in February to 51.6 last month — its highest level since October last year. A reading above 50 signals an improvement in operating conditions on the previous month.

Interest rates were left unchanged in January and last month, fuel prices remain lower by historical standards and load shedding has not been as severe for the private sector .

These factors could also have supported confidence.

 While these factors will support confidence, some economists believe supply constraints will weigh on output and economic growth potential.

The Treasury expects the economy to grow by 2% this year, while the Reserve Bank said the economy should grow by 2.2% if there were no protracted work stoppages.

The unpredictable nature of strikes and electricity shortages would cause uncertainty about economic growth performance this year, Barclays Africa economist Peter Worthington said.

The PMI is compiled from results of a survey of about 400 purchasing executives at private- sector firms in mining, manufacturing, retail, construction and the services sectors. New orders, output, employment, suppliers’ delivery times and stocks of purchases are monitored. New orders improved last month, with the rate of expansion being the strongest since October last year.

“Companies that reported a fall in new export orders partly linked this to weaker demand from foreign markets and high costs,” Mr Kolodseike said.

IHS senior economist Thea Fourie said the domestic private sector might find support from improved global demand conditions in coming months, particularly regarding key markets such as Europe. Ms Fourie said lower oil prices, a markedly weaker euro and the European Central Bank’s stimulative measures were “increasingly feeding through to lift eurozone economic activity”.

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