Business conditions on the upswing – Stanbic

Stanbic Bank says the Zambian private sector showed further signs of recovery in February, with both output and new orders returning to growth during the month amid reports of improving demand.

However, the respective rates of expansion were only modest, and companies left their staffing levels generally unchanged.

Data pointed to a further softening of inflationary pressures, with both input costs and output prices rising at slower rates for the second month running.

The main findings of Stanbic Bank’s Purchasing Managers Index (PMI) survey revealed a headline figure of 50.4 rising from 48.1 in January. This marked the first time the the headline PMI was above the 50.0 no-change mark in seven months.
The reading signalled a marginal improvement in business conditions in the Zambian private sector.

New orders returned to growth in February, ending a six-month sequence of decline – Panellists linked this to improving demand and higher customer numbers.

Increasing customer flows also resulted in a return to growth of business activity, although the expansion was only fractional.

Despite a rise in new orders in February, the reductions seen in previous months meant that companies in Zambia were able to keep on top of workloads.

Backlogs of work decreased for the eighth successive month. A lack of pressure on capacity led firms to scale back staffing levels fractionally for the second month running. Some panellists increased employment, however, as new orders returned to growth.

“Improved output and new orders in February weighed in considerably on the marginal improvement in business sentiment,” said Stanbic Bank Head of Global Markets Victor Chileshe.

He noted that the recent fuel price reduction coupled with the appreciation of the Kwacha against the Rand, over the first quarter, will provide a welcome relief on input costs.

Inflationary pressures continued to wane midway through the first quarter of the year. The pace at which overall input costs rose softened for the second month running and was the weakest since last October.

Both purchase prices and staff costs increased at slower rates in February. A similar picture was evident for output prices, with charges up for the fifth successive month but at the slowest pace in this sequence.

Panellists said the rising selling prices were as a result of companies passing on higher input costs to clients – Though some companies lowered charges to help boost sales.

On the other hand, signs of improving customer demand led companies to raise their purchasing activity for the second time in the past three months, while inventories increased following a two-month period of decline.

The persistent recovery trend in business conditions, albeit at marginal rates, paints a positive picture of the private sector for the coming months.

Though the recovery in the health of business conditions in the private sector is still far from complete, there is evidence to suggest it is gathering momentum and the worst may be behind us.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.