According to the latest Absa Manufacturing Survey for the first quarter released by Absa Business Banking, the sector’s headline confidence index dropped by nine points to 30, signalling a marked deterioration in sentiment compared to the previous quarter.
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South Africa’s manufacturing sector has entered 2026 on a subdued footing, with declining demand and falling sales volumes weighing heavily on business confidence despite pockets of resilience and optimism for the year ahead.
According to the latest Absa Manufacturing Survey for the first quarter released by Absa Business Banking, the sector’s headline confidence index dropped by nine points to 30, signalling a marked deterioration in sentiment compared to the previous quarter.
This is in line with StatsSA’s manufacturing production for January 2026 as it indicated that activity decreased by 0.7% year-on-year in January.
The latest S&P Global South Africa Purchasing Managers’ Index (PMI) also showed that manufacturing and broader private sector activity remained in a holding pattern in February, as weak demand and declining sales offset gains from easing cost pressures and a modest rebound in employment.
Absa said the decline reflects widespread weakness across key indicators, including domestic and export sales, new orders and selling prices.
The survey highlights a sharp contraction in demand conditions. Domestic sales fell by 14 index points, while export sales declined by 16 points. Even more concerning was the steep drop in new orders, with domestic orders down 22 points and export orders plunging by 27 points.
“The glimmer of hope that emerged during the last quarter of 2025 was short-lived, despite the many positive macro factors such as a stronger exchange rate, lower inflation rates and fuel prices supporting the local operating environment,” said Sachin Chanderdhev, sector specialist for manufacturing at Absa Business Banking.
“The findings underscore the fact that our manufacturing sector participates on a global stage and is therefore not immune to external shocks, with global players looking to redefine trading partners following the implemented tariffs and global market uncertainty. The decline in export activity experienced since last year is creating longer term strain on the sector.”
While the decline in confidence was broad-based across most subsectors, there were a few notable exceptions.
The transport manufacturing segment showed a modest improvement, with its index rising to 26 from 19 in the previous quarter. Similarly, the food and beverage sector recorded an uptick in export sales. However, both sectors reported significantly lower selling prices, indicating that gains in volume may be coming at the expense of profitability.
Chanderdhev said more manufacturers are re-thinking their energy mix to combat rising electricity tariffs, while others are looking to adopt new technologies to improve throughput and efficiency.
“Unlocking efficiency, removing unnecessary cost andrunning lean operations are critical to remain competitive in an unpredictableoperating environment,” Chanderdhev said.
“In addition to investing in renewable energy, clients are also looking to improve their water security with storage, recycling and water backup solutions. These investments aim to reduce operating costs, manage infrastructure-related risks and strengthen long-term competitiveness.”
One of the emerging challenges highlighted by respondents is the growing impact of cheaper imports on local producers. Increased competition from international markets is eroding domestic demand, forcing manufacturers to reassess their pricing strategies and operational efficiencies.
Despite these headwinds, there are signs that the sector is adapting to the changing landscape. Many manufacturers are actively investing in new technologies and alternative energy solutions to improve efficiency and reduce costs.
The survey points to a notable 18-point increase in the index for expected fixed investment over the next 12 months, suggesting that businesses are positioning themselves for a potential recovery.
“Even though the operating environment remains difficult, manufacturers continue to demonstrate resilience,” adds Chanderdhev.
Energy resilience has become a key focus area, with firms exploring renewable energy options to mitigate rising electricity tariffs and reduce reliance on an unstable power grid. In addition, companies are investing in water security measures such as storage, recycling and backup systems to address infrastructure-related risks.
Encouragingly, some structural constraints appear to be easing. Respondents reported slight improvements in short-term interest rates and the general political climate, which could support a more stable operating environment in the months ahead.
While the current outlook remains challenging, the survey underscores the resilience of South Africa’s manufacturing sector. Absa said businesses are increasingly adopting lean operating models, cutting unnecessary costs and seeking innovative ways to remain competitive in an uncertain global market.
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