LUSAKA, ZAMBIA – The Zambian private sector neared stabilisation during October as business conditions across the economy showed signs of improvement following the worst of the coronavirus disease 2019 (COVID-19) pandemic earlier in the year.
New orders fell only slightly, while the decline in output was the weakest for 20 months. Similarly, softer reductions were seen in employment and purchasing activity at the start of the final quarter of the year, according to the latest Stanbic Bank Zambia IHS Markit Purchasing Managers’ Index.
The headline PMI improved to 48.9 in October, up from 46.6 in September and the highest in the current 20-month sequence of sub-50 readings. That said, the index still signalled a modest deterioration in private sector operating conditions.
“Slower reductions in both backlogs of work and employment were recorded during October, consistent with the trends in output and new orders,” said Dean Onyambu, economist at award-winning Stanbic Bank Zambia.
Mr Onyambu explained that pressure on wages reportedly came from efforts to incentivise workers and signs of improving demand, and that staff costs were broadly unchanged, following seven successive monthly reductions in employee expenses.
Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50.0 show a deterioration.
He further said that the pace of decline in new orders continued to slow sharply during October as some firms were able to secure greater new business volumes.
“The overall fall was only marginal and the slowest since prior to the COVID-19 outbreak, although respondents indicated that demand remained fragile.
With new orders showing signs of recovery, companies reduced their business activity to the least extent in the current 20-month sequence of contraction. Where output continued to fall, respondents linked this to the COVID-19 pandemic and a lack of money in circulation,” he continued.
Mr Onyambu however said that purchase cost inflation was the steepest since February, with panellists mainly linking higher prices to weakness of the Zambian kwacha against the US dollar.
The increase in purchase costs fed through to higher selling prices.
He added that business confidence ticked higher but remained well below the series average amid ongoing uncertainty.
“Charges rose at a marked pace, albeit one that was slightly weaker than that seen in September.
Companies remained reluctant to hold inventories and therefore lowered purchasing and stocks of inputs. That said, the respective rates of decline softened,” he said.