Manufacturing Sentiment in South Africa Decreases as Production Momentum Falters

Sentiment in South African manufacturing has declined as a slowdown in production activity impacted output, and local demand faced challenges.

The Purchasing Managers’ Index from Absa Group, prepared by the Bureau for Economic Research, remained in the contraction zone for the third consecutive month. The index dropped to 45.8 in August, down from 46.8 the previous month, as stated by the Johannesburg-based bank in an email on Tuesday.

The index experienced a notable decline due to significantly reduced business activity, with a sub-index plummeting to 40.2 from 48.8, indicating a marked drop in factory output.

“This suggests that manufacturers entered the latter part of the third quarter with much less production momentum than just a month prior,” Absa commented.

A key measure of new sales orders decreased to 40.3, down from 44.1 the previous month, reflecting lower exports and weakened local demand.

“Export sales seemed to show slightly less weakness during the month, implying that the renewed downturn in demand was primarily driven by domestic factors,” the bank noted. “Respondents highlighted subdued consumer demand, lack of confidence, and particularly low spending on non-essential items – underscoring the ongoing pressures faced by manufacturers from cautious household and business expenditure.”

The survey was conducted in August, coinciding with renewed tensions between the US and Iran after a temporary lull in hostilities. This conflict has created strain on consumers as rising gasoline and fertilizer prices contribute to inflation and diminish discretionary spending.

A purchasing price sub-index remained steady at 67.2, indicating that cost pressures did not lessen further in August.

“Increased diesel and international oil prices contributed to heightened costs during the month, although a stronger rand offered some relief regarding imported inputs,” Absa stated. “With diesel prices set to rise again in September, input-cost pressures are expected to remain high.”

The supplier deliveries sub-index increased to 58.6, up from 55.5, with some respondents reporting shortages of containers, limited shipping availability, and renewed delays at Durban harbour.

Nevertheless, the measure of anticipated business conditions in six months’ time bounced back to 54.7 from 49.3, indicating that manufacturers believe the prevailing weak conditions are temporary, even though “the combination of dwindling orders and significantly reduced production suggests that short-term conditions remain tough,” Absa remarked.

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