Businesses in the manufacturing sector in South Africa are expecting conditions to deteriorate over the next six months on the back of intermittent power supply and the souring relations between South Africa and the United States.

South Africa is currently in the crosshairs of the Trump administration and diplomatic relations have deteriorated over the government's passing of the Land Expropriation Act and its stance on the Palestine-Israel conflict.

The business sector is also dealing with intermittent power supply as Eskom implemented load shedding for a few days in every month since the beginning of the year, albeit it was soon suspended.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) released on Tuesday remained in contractionary territory for a fifth consecutive month despite inching up by 4 points to 48.7 in March from 44.7 in February.

Though the March PMI reading indicated the mildest contraction in the ongoing five-month sequence of declines, this was the highest reading since the 52.6 points recorded in October driven by export recovery.

Absa said that despite some recovery in March, a weak January and February meant that the average for the first quarter of 2025 was at 46.2 points, below the fourth quarter’s 2024’s 49 points.

The business activity index increased by 7.7 points to 48.3 in March in response to improved demand. But the recovery in demand was not strong enough to push the index into positive territory, and the current level points to another decline, albeit at a slower pace than before.

New sales orders increased by 10.2 points to 48.7 points in March, supported by a strong recovery in the export markets as they returned to expansionary territory for the first time since November.

The index tracking export sales showed significant gains in the export markets, with sales returning to expansionary territory for the first time in four months. This was despite the current global trade disagreements and logistical issues.

Absa said comments from respondents indicated that logistical issues at the ports remained, and souring relations with the biggest economy in the world was bringing uncertainty – although it may not be affecting trade at the moment.

However, the supplier deliveries index eased slightly by 0.8 points to 54.1 points, indicating some improvement in delivery times.

While the slight improvement could be welcome if driven by better-working supply chains, it could also reflect sustained weaker demand.

The employment index increased by 3.9 points to 46.1 but remained in contractionary territory for a twelfth consecutive month as there has yet to be a sustained recovery in activity.

“Growth remains lacklustre, with a pick-up in sentiment and accordingly investment and growth needed to drive a sustainable lift in employment,” said Investec economist, Lara Hodes.

“Favourably, purchasing prices declined during the month, supported by a stronger rand against the greenback. Heightened uncertainty around tariffs and their effect on inflation and interest rates as well as government spending have weighed on the greenback.”

Absa said the inventories index ticked down to 45.9 in March as manufacturers reduced the stock of finished goods and raw materials, possibly with activity still slow to recover.

However, the purchasing price index decreased by 5.9 points to 64.5 in March.

“The rand exchange rate, in line with other emerging market currencies, has been relatively stronger against a weaker US dollar, and this has served manufacturers well in terms of imported materials and fuel prices; hence, cost pressure is easing following two months of cost increases,” Absa said.

“The index tracking expected business conditions in six months’ time decreased further by 2.5 points to 58 in March, edging below 60 points for the first time since 57.6 points in May 2024. The return of load shedding and the souring SA-US relations likely continue to weigh on sentiment.”

BUSINESS REPORT

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Manufacturing sector bracing for further decline amid power woes and US tensions