Operating conditions in the private sector in South Africa remain positive; however, the rebalancing process in reaction to the weaker rand is progressing slowly, analysts said on Monday.

The weaker rand has made input costs in the manufacturing sector more expensive, although exports could improve as more is earned with the weaker rand.

This could, over time, reduce the trade deficit.

However, the HSBC SA purchasing managers index (PMI) for December, released on Monday, declined to 50.5 in the month, from November’s 11-month high of 51.6

At 50.5 last month, the seasonally adjusted HSBC PMI signalled a third successive monthly improvement in operating conditions across South Africa’s private sector.

HSBC economist David Faulkner said the latest survey results pointed to a further improvement in operating conditions. The fourth quarter was the strongest quarter last year.

“However, the pace of expansion remains subdued,” he said.

Readings above 50.0 signal an improvement in business conditions on the previous month, while readings below 50 show a deterioration.

The rand weakened on Monday to R10.73/$ from its previous close of R10.6425.

The currency has been persistently weakening since the end of last year after the US Federal Reserve announced that tapering was set to commence at the end of the month. Mr Faulkner expected the trade balance to remain under pressure in coming months.

“A fall in new export orders continues to suggest rebalancing in the economy will be a gradual process,” he said.

South Africa’s November trade balance, which reflected a positive R0.8bn after a R12.4bn deficit in October, could be a flash in the pan.

However, Rand Merchant Bank (RMB) currency analyst John Cairns said the economic figures did suggest support for rebalancing. “This means a slowdown in domestic consumption and imports and a pickup in production and exports.”

So far, the propensity of the economy to continue with strong imports has remained stubbornly high as exports have fallen, mainly in the mining sector.

The rand was the key, Mr Cairns said. “If the economy rebalances this year, the pressure on the rand will ultimately ease. If not, then the risk of a rand crisis will keep rising.”

South Africa’s exports should receive some boost from foreign customers as comparable PMI data released in some advanced economies indicates a bias towards imports.

Apart from China, economic conditions in major South African export areas are improving.

Overall, PMI surveys in the euro area are in line with a modest recovery, which should gain further momentum as the year progresses, Barclays Research said in a note on Monday.

Though the UK headline services PMI in December fell slightly, to 58.8 points, the various survey subcomponents still implied a strong positive momentum in activity, Barclays Research said.

This had caused growth adjustments to be revised upwards in the UK to 1.9% for this year.

A similar trend was noticeable in other export destinations in the emerging European eurozone countries. Although the emerging Europe manufacturing PMI declined last month to an average 50.8 points from 51.7, Turkey Poland and the Czech Republic recorded levels above 53, suggesting strong growth.

In South Africa, the HSBC PMI for last month did indicate growing inflationary pressures in the economy due to the weakened currency.

Mr Faulkner said further pressure was expected on the PMI in coming months.