Manufacturing industry sentiment shows slight improvement, still in contraction

Sentiment in the manufacturing industry in South Africa remained in the contractionary territory despite ticked up slightly in June, marking its second-highest reading of the year.

Data from the Absa Purchasing Managers’ Index (PMI) on Tuesday revealed a modest recovery in South Africa’s economic landscape, with the index rising by 5.4 points to reach 48.5 in June from 43.1 in May.

Despite this encouraging movement, the PMI indicated that the economy remained in contractionary territory for the eighth consecutive month., revealing the ongoing struggles facing the nation.

Nonetheless, economists welcomed this increase, noting that the 5.4-point gain stood as the most significant rise since the 9-point jump recorded between August and September of 2024.

Nkosiphindile Shange, economist at the Bureau for Economic Research, which conducts the PMI on behalf of Absa, said new sales orders increased by 7.8 points to 46.1 in June, signalling some recovery in demand.

“While export sales recovered somewhat in June relative to May, volumes remain near the lowest levels seen this year. This suggests that domestic demand boosted the large recovery in total new sales orders,” he said.

“However, the improvement in demand failed to boost production as the business activity index decreased by 1.5 points to 41.9 points in June.”

In response to the uptick in orders, the supplier deliveries index also noted an increase, rising by 6 points to 55.1, which signals extended delivery times linked to heightened order volumes.

Interestingly, there were no significant supply bottlenecks reported, implying that suppliers have coped with the heightened demand so far.

On a more positive note, the employment index recorded a substantial jump of 9.7 points to 49.7, marking its highest level since March 2024. Despite this encouraging trend, economists cautioned that continued improvements are necessary before asserting that the manufacturing sector is on a path of recovery.

The purchasing price index, indicating inflationary pressures, continued its downward trajectory, decreasing by 2.3 points to 58.1 in June.

Economists noted that the stronger performance of the rand—averaging 40 cents firmer against the dollar throughout June—coupled with a decline in diesel prices earlier in the month, played a role in this positive movement.

Professor Raymond Parsons, an economist from the North West University, said this was a positive but modest trend. Parsons said the priority now was to build on the incipient economic upturn in ways that guarantee a sustained recovery.

“Although higher in June 2025, the Absa PMI again, nonetheless, confirms that the SA economy is still struggling to gain momentum. By still being in negative territory for an eighth consecutive month, high-frequency data like the Absa PMI is still sending out mixed signals about the strength of the economic recovery,” Parsons said.

Efficient Group chief economist, Dawie Roodt, said the problem with the South African economy was mainly growth, or lack thereof. 

“We are flirting with recession; it's just not going anywhere at the moment. What we actually need is some sort of jolt, some sort of reaction from politicians to get the economy out of this situation,” Roodt said.

“The PMI illustrates this that it's a little better, but it's still in contractionary territory. It's not good; we need new policies and ideas for something different to get the economy growing.”

Investec chief economist, Annabel Bishop, said the manufacturing sector's contraction was reflective of the insufficient capacity of the ports and rail to export out bulk commodities.

“Progress on improving Transnet’s capacity, on both the rail and port sides to end the domestic freight crisis that weakens South Africa’s growth rate, continues to be too slow, with both mining and manufacturing production contracting in Q1.25,” she said.

“Bouts of load shedding starting up this year signify insufficient electricity supply to consistently meet demand when planned and unplanned maintenance occurs, with the country’s extremely aged electricity distribution system prone to breakdowns.

“In the main, while load shedding remains largely in abeyance, economic growth does put strain on the aged grid and limits the economy’s growth beyond 1.0% y/y, with the PPP’s planned to drive improved supply conditions yet to sufficiently occur.”

BUSINESS REPORT