After shrinking by 0.4% in 2024, the sector is on track for another contraction this year, with output down 1.5% year-to-date, even before fourth-quarter data is included, Absa said.
Image: Simphiwe Mbokazi/Independent Newspapers
South Africa’s 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.
The latest S&P Global South Africa Purchasing Managers’ Index (PMI) released on Wednesday showed that the headline index was unchanged at 50.0 in February, the same level recorded in January.
A reading of 50.0 signals stagnation for a second consecutive month after weakness in late 2025, indicating that business conditions neither improved nor deteriorated compared to the previous month.
The S&P print follows the Absa PMI for February, which lost ground with the headline index declining from to 47.4 in February following an 8.2 point increase to 48.7 in January.
S&P said while the flat reading points to stability after a weak final quarter of 2025, underlying indicators suggest that the recovery remains fragile.
Survey data revealed that new business volumes declined for the fourth time in five months in February. Companies reported a slight dip in overall sales, reflecting what many described as a subdued demand environment.
To maintain production levels, firms relied heavily on clearing backlogs of existing work. Outstanding business fell sharply again in February, marking the fifth consecutive month in which backlogs declined at a pace faster than the long-term trend
This strategy helped keep output broadly stable, but it also masked softer underlying demand. With order pipelines thinning, many manufacturers signalled caution about the months ahead.
David Owen, a senior economist at S&P Global Market Intelligence, said a shortage of order intakes made some firms hesitant to predict an expansion in activity over the next 12 months, bringing expectations down to their weakest level since mid-2021.
"That said, there are a number of economic fundamentals that could rebuild confidence. Soft inflation, helped by a strong rand (vs the dollar), continued to keep cost pressures at bay in February," Owen said.
"This led to a fresh fall in selling prices that could support an uplift in customer spending. In addition, domestic interest rates are expected to trend downwards in 2026, while the recent ruling on US tariffs should bring some relief to exporters."
Business optimism about the next 12 months fell to its lowest level since July 2021, highlighting growing concern about the sustainability of current activity levels.
Despite the muted sales environment, firms reported a renewed increase in employment in February, reversing a slight contraction recorded in the previous month. The uptick suggests that some companies remain hopeful that demand will improve later in the year.
However, inventory strategies remained defensive. Businesses reduced their stocks of purchases for the third consecutive month, signalling caution in committing to new inputs amid uncertain demand.
Supplier performance also showed mild disruptions, though these were less severe than at the start of the year, indicating that supply chains remain relatively stable.
One of the more encouraging developments in February was the continued moderation in cost pressures. Input price inflation remained subdued, helped by an improving exchange rate against the US dollar and lower fuel prices.
Although wage costs rose at the fastest pace in seven months, overall cost burdens were mild enough to allow firms to reduce their selling prices. Average output charges declined for the first time since May 2025, potentially offering some relief to customers and supporting future demand.
Economists say the combination of softer inflation, a relatively strong rand and expectations of lower domestic interest rates later in 2026 could provide a foundation for improved business confidence.
According to S&P Global Market Intelligence, February’s data reflect a steady but delicate operating environment. Companies appear to have secured enough work to keep activity ticking over, but the reliance on backlog clearance and the persistent weakness in new orders underscore the lack of strong momentum.
The flat PMI reading also marks an improvement from the final quarter of 2025, when business conditions deteriorated consistently. However, with forward-looking indicators softening, manufacturers face a challenging balancing act.
While lower inflation and potential interest rate cuts may stimulate spending, S&P said firms remain wary of expanding production aggressively without clearer signs of sustained demand.
BUSINESS REPORT