South Africa's private sector economic activity fell into contraction in September for the first time in three months.

S&P Global data showed that South Africa's September Purchasing Managers' Index dropped to 49.0 from 50.5 in August, marking the weakest reading since 2026 and falling back below the 50 boom-or-bust line.

Business activity declined in September for the first time in three months, and the rate of decline was the sharpest since May.

The main reason was a weakening demand environment, while some companies were also affected by insufficient raw material supplies and delivery delays, forcing them to cut production and business operations.

Among the components, new orders deteriorated most noticeably. New orders in September fell at the fastest pace in two and a half years.

Companies said that uncertainty over domestic and international economic prospects, as well as rising fuel prices, made both businesses and consumers more cautious about spending.

However, external demand showed relatively more resilience. New export orders grew for the fourth consecutive month, and the pace of growth accelerated further from August, providing some buffer against the overall decline in demand.

Cost pressures remained elevated. Rising fuel prices pushed up business operating costs notably in September, and overall input costs continued to rise.

However, as wage cost growth slowed somewhat, the pace of input price inflation eased slightly from August.

Companies continued to pass some cost pressures downstream, with selling price inflation rising to the fastest since June in September, indicating that firms were still protecting profit margins through price increases.

Supply chain problems also deteriorated markedly. Supplier delivery times lengthened in September by the most since February 2024.

Companies specifically mentioned worsening conditions at the Port of Durban, where container backlogs caused transport delays; at the same time, Middle East conflicts further disrupted international shipping and led to shortages in some raw material supplies.

Against the backdrop of declining orders, companies slightly reduced raw material purchases, with the decline in purchasing inventories reaching the largest in a year and a half.

This indicates that many companies have begun to actively manage inventory in response to weakening demand.

The employment market remained relatively stable. Employment levels at companies showed essentially no significant change in September, similar to the trend in August.

As order pressure eased, companies were also able to work through backlogs more quickly.

It is worth noting that although business conditions deteriorated during the month, companies' confidence in the year ahead actually strengthened. Business expectations rose to a four-month high in September.

Companies generally expected demand to improve in the future, while many firms still planned to expand capacity and hoped that output could return to growth once supply chain bottlenecks and fuel price pressures eased.

Therefore, the signals from South Africa's September PMI were relatively complex. On the one hand, the sharp decline in new orders, contraction in business activity and supply chain delays indicated a clear weakening of short-term economic momentum; on the other hand, continued growth in export orders, stable employment and improved business confidence suggested that companies did not view the current weakness as a long-term trend.

Overall, South Africa's economic pressures in September were mainly concentrated in three areas: weakening domestic demand, high fuel costs and supply chain bottlenecks. As long as transport and energy costs can ease, the private sector still has the possibility of returning to expansion territory.