Manufacturing sector performs poorly for second consecutive month

The index increased by 1.9 points to reach 45.7 points in June 2024, while in May 2024 it was at 43.8.

Absa welcomes the improvement but raises concerns that the Purchasing Managers’ Index (PMI) remained below the 50-point mark for the second consecutive month. However, they note there was a very strong start to the second quarter, which earned the growth in manufacturing production data.

Insufficient demand remains a thorn

The suspension of load-shedding would have helped business activity in the second quarter to perform higher, but the index shows that the insufficient demand seemed to have weighed heavily on the sector. “The business activity index declined further to 36.3 points in June, from 38.1 points in May. This is very downbeat following the strong start to the second quarter. Furthermore, new sales orders remain muted, edging up to 37.9 points in June from 37.8 points in May.”

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The index also reveals that export sales have been stuck below the neutral 50-point mark for four consecutive months, which suggests that the weakness is not just coming from domestic demand. “Supplier deliveries are worsening (meaning that they take longer to arrive), with the index measuring suppliers’ performance increasing from 55.4 in May to 56.1 in June. Port issues likely remain a concern.”

Political impact

Jee-A van der Linde, senior economist at Oxford Economics Africa says the latest outturn aligns with their view that weak demand probably offset the impact of load-shedding reprieve during Q2 2024. Political uncertainty also would have weighed on sentiment during the past quarter, leading to businesses opting for a wait-and-see approach.

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Following the unveiling of the new cabinet, and uncertainty out of the way, the government is expected to address the issues of South Africans. However, it remains a question whether the Government of National Unity will be able to address South Africa’s economic issues.

“The index for expected business conditions in six months’ time increased to 68.1 in June from 57.6 in May, mostly driven by the country’s political developments. Respondents have not been this optimistic about future business conditions since early 2022.”

Light at end of the tunnel

Absa’s release ended off with positive news that the purchasing price index declined for a third consecutive month, falling to 64.5 points in June from 66.9 in May.

They also noted that at the beginning of June, petrol prices fell by R1.24 a litre, while diesel prices fell between R1.09 and R1.19, depending on the grade. A further fuel price decline is expected in July, which would help alleviate more pressure on costs.