Dismal manufacturing PMI shows no contribution to economic growth

The dismal manufacturing PMI for January shows that it will not contribute to economic growth in the first quarter, with prices and employment in the manufacturing sector of especial concern.

The Bureau for Economic Research (BER) says the seasonally adjusted Absa Purchasing Managers’ Index (PMI) started the year on the back foot, declining by 0.9 points to 45.3 in January, the third consecutive contraction and the lowest level since August 2024.

“This suggests that the loss of momentum observed at the end of 2024 has not reversed at the start of the year. However, it was encouraging that activity and demand improved from low levels, although remaining in contractionary terrain,” the BER says.

The Absa PMI is an economic activity index based on a survey conducted by the Bureau for Economic Research (BER) and sponsored by Absa. S&P compiles the S&P Global South Africa PMI from about 400 private sector purchasing managers’ responses to a questionnaire.

The business activity index increased by 3.2 points to 43.5 in January. The BER says the slight improvement in activity comes amid signs of recovering demand, as the new sales orders rose to 42 points from 37.4 in December.

Export sales also recovered slightly, but the index remained below the November level as respondents flagged some issues that were hurting production and demand, including trade disruptions with Mozambique due to the political turmoil and fuel shortages affecting air freight.

ALSO READ: SA business activity runs out of steam at end of 2024, but not all bad — PMI

ArcelorMittal closure also flagged in PMI

The BER says the upcoming closure of ArcelorMittal’s longs business in South Africa was flagged as potentially affecting some producers over the next six to 12 months.

While activity and orders increased, the other three components of the headline PMI declined. The supplier deliveries index decreased by 6.1 points to 49.9 points, indicating that the delivery times are faster, which could be positive if it points to better working supply chains.

However, the BER says, given the logistics issues flagged by respondents, this seems unlikely and probably points to weaker demand for supplied goods. The BER also finds it worrying that the employment index decreased by 2 points to 44.4 and remained in contractionary territory for the tenth consecutive month.

“Employment contracted during the first three quarters of 2024, and the PMI suggests it will take some time to recover.”

The inventories index declined to 46.5 from 50.7. Reversing a sustained downward trend, the purchasing price index increased by 7.8 points to 68.2 in January due to a weaker rand exchange rate and higher international oil prices, with a fuel price increase at the start of the month.

ALSO READ: Absa PMI drops to 48.1 in November, manufacturing suffers

Upcoming fuel price hikes affect expected business conditions in PMI

Looking ahead, a further fuel price increase is expected in February, and the BER warns that renewed cost pressure could (in part) explain why the index tracking expected business conditions in six months’ time decreased by 2.6 points to 64.9 in January.

Uncertainties about global trade dynamics could have added to the drop. Still, despite the fall, the current level indicates that manufacturers remain fairly optimistic about business conditions in the future, the BER says.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says South Africa’s dismal manufacturing PMI reading for January bodes ill for the sector’s contribution to economic growth in the first quarter.

“The rising purchasing prices index and the struggling employment indicators are areas of concern. However, an uptick in the salient business activity and new sales orders index scores are encouraging for activity and demand prospects.”

He says that despite registering below the neutral 50-point level, the business activity index rose by 3.2 points to 43.5 in January. “The marginal improvement could be attributed to signs of recovering demand, as new sales orders increased on a month-on-month basis.”

ALSO READ: Economic activity still moving sideways but optimism increases

Manufacturing will do better in 2025 despite dismal PMI

“The manufacturing sector started 2025 pretty much the same way that it ended 2024 – on a dismal footing. Although there has not been disruptive load shedding for several quarters, logistical constraints are frustrating businesses, further aggravated by persistently weak domestic demand and lacklustre private sector investment.

“Amid widespread uncertainties about global trade dynamics, the index tracking expected business conditions in six months’ time declined by 2.6 points to 64.9 in January. Despite the fall, the current level suggests that manufacturers remain optimistic about future business conditions.”

Van der Linde says, although recent manufacturing-related data readings have been disappointing, they still expect economic conditions to improve in general in 2025, albeit gradually. “We forecast real gross domestic product (GDP) growth in 2025 to register 1.5%, more than double the 2024 estimate of 0.7%.”