SA's manufacturing activity firmly in contractionary territory in May

The Absa Purchasing Managers’ Index (PMI) released on Monday indicated that the seasonally adjusted PMI decreased by 1.6 points to 43.1 in May 2025. Absa said that the PMI remained in contractionary territory for a seventh consecutive month. 

The PMI suggests that the manufacturing sector continued to suffer in May, despite some flickers of activity and demand improvement, albeit at extremely low levels. “However, a decline in the supplier deliveries index pushed the headline PMI lower. The business activity index indicated some improvement, increasing by 3.4 points to 43.4 in May. New sales orders also increased, by 2.2 points to 38.3 in May. This was likely due to domestic demand recovering slightly as export sales continued to deteriorate at a rapid rate.”

Absa said the supplier deliveries index has been tricky to interpret since the Covid-19 pandemic. “Across the globe, the traditional signal of an increase being positive (with the index being inverted, so slower deliveries are seen as a positive sign as they are caused by increased demand for supplies) was no longer valid, as supply-chain bottlenecks and delays, and not higher demand, caused slower deliveries.”

The purchasing price index decreased by 7.9 points to 60.4 in May due to fuel price cuts at the start of the month. “A lower Brent crude oil price and a stronger rand, despite the fuel levy increase, bode well for further fuel price declines at the start of this month.”

Absa added that the index tracking expected business conditions in six months’ time increased by a significant 13.9 points to 62.5 in May, the highest level since the end of 2024. “Sentiment improved as global tariffs were suspended, and businesses showed faith that local political disagreements on policy within the government would be resolved.”

Investec economist Lara Hodes said, "The slide in the index was partly underpinned by a decrease in the suppliers’ delivery index, which fell from 56.6 to 49.0. According to the BER, the decline in the index (the index is inverted so a decline suggests faster deliveries) could technically mean that logistical constraints are easing.”

Hodes added that the business activity and new sales orders’ indices remained subdued, well below 50, but did pick up modestly in May, despite a continued weakening in export sales. “Worryingly, the employment index fell further into contractionary territory in May with a reading of 40.0 (42.9 previously). It has been in negative territory for fourteen consecutive months.

Hodes said addressing the country’s unemployment crisis remains a key imperative of the government. “However, to achieve this, we need a substantial lift in confidence, driving investment and accordingly economic growth. Purchasing prices declined notably in May by 7.9 points to 60.4, supported by a further cut in fuel prices. Favourably, the index measuring anticipated business conditions (in six months’ time) moved back into expansionary territory, reaching the highest level since the end of 2024. It climbed 13.9 points to 62.5.”

Dr Eliphas Ndou, an economist and author at Unisa’s Department of Economics, said the latest Absa Purchasing Manager Index indicates the manufacturing sector is struggling and is susceptible to weak demand conditions, political and trade uncertainty, which has implications for economic growth and employment outlook in the country. “The Absa PMI has a statistically strong and positive co-movement with economic growth and is a leading indicator of economic growth. This means an improvement in the indicator would signal an improvement in economic growth. Whilst a weakening in the Absa PMI signals a weakening in economic growth.”

Professor Waldo Krugell, an economist at North-West University, said that the PMI is still in contractionary territory and this is worrying for the growth prospects of the economy. “The expectations are that this week's quarter one growth figures are not going to look good, but the PMI has shown business struggling in April and May as well.”

Professor Bonke Dumisa, an independent economic analyst said that he is  not surprised about this negative Absa PMI. “The buyers in most manufacturing companies are usually the most conservative in the business, believing it is safest to adopt a cautious approach and be accused of opportunity cost in case they run short of products. The global uncertainty created by Trump's tariffs, wars and other consequential impacts of his "Executive Orders" have resulted in most buyers becoming very pessimistic about the business conditions.

BUSINESS REPORT

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