Home Opinion and Features Factory activity cools in January as local, global demand weakens

Factory activity cools in January as local, global demand weakens

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Sentiment within the manufacturing industry in South Africa has remained optimistic about an improvement in economic conditions that could drive up demand in 2024 after business activity plunged for the fifth month in a row in January.

Nearly half of all surveyed firms expect business activity to increase by January 2025. File picture: Pexels

SENTIMENT within the manufacturing industry in South Africa has remained optimistic about an improvement in economic conditions that could drive up demand in 2024 after business activity plunged for the fifth month in a row in January.

The S&P Global South Africa Purchasing Managers’ Index (PMI) remained in contractionary territory in January as demand levels continued to worsen at the start of 2024, signalling the sharpest drop in new order volumes in a year.

S&P said on Monday that the PMI ticked up from 49.0 index points in December to 49.2 in January, indicating a slight decline in the sector’s performance for the second month running.

The S&P PMI is similar to that of Absa, which plunged as demand and activity faltered, while new vehicle sales and exports also declined to 43.6 index points in January, down from 50.9 in December.

S&P said that firms reported a decrease in new business for the ninth month in a row in January.

The pace of decline was the sharpest recorded in a year, as survey panellists commented on weak economic conditions and reduced client spending power.

S&P said new orders from abroad also fell as firms suggested that worsening global demand and shipping disruption led to a drop in sales.

It further said that businesses faced further headwinds on the supply side, largely as a result of the Durban port crisis.

Delays to the processing of shipping containers meant that one in five firms saw their delivery times lengthen over the latest survey period, marking the second-fastest deterioration in supplier performance in nearly two years.

S&P said these factors, combined, resulted in a solid contraction in business activity in January, even though the rate of reduction softened slightly from December, in part due to an uptick in services output.

S&P Global Market Intelligence senior economist David Owen said South African businesses remained beset by demand and supply-side challenges at the beginning of the year, notably the Durban port crisis and its impact on delivery times and output capacity.

Owen said the latest PMI data suggested that supplier performance worsened at a similar pace to December’s 23-month record, with some firms noting shortages of inputs and the curtailment of activity.

“At the same time, companies registered the sharpest decline in new orders in exactly a year, as the impact of inflation and weak customer confidence continued to be felt across all sectors,” Owen said.

“That said, a slowing of input cost inflation meant that output prices rose only modestly, which suggests that clients should start to see some relief on prices.

“This turnaround has given firms greater optimism that 2024 will deliver a better year for the private sector.

“Indeed, nearly half of all surveyed firms expect business activity to increase by January 2025. This confidence encouraged more stable trends in purchasing and employment, which signals that firms are willing to spend more in the hope of a near-term recovery.”

Meanwhile, purchase costs rose at the weakest pace since December 2020 and wage costs lifted only modestly while employment fell at the slowest pace for three months.

Together, this meant that selling charges were raised at only a moderate pace in January, with the rise closely matching those seen in the preceding two months.

Business also acted to soften the rate of job cuts during January, and as a result, employment fell only fractionally and at the slowest pace for three months.

Some firms reported a drop in staff numbers due to lower workloads and financial issues, whereas others noted the filling of previously vacated roles.

Finally, S&P said businesses were strongly upbeat about activity and demand trends in 2024, with many predicting an improvement in economic conditions that could help drive company expansion, with the degree of optimism rising to its highest since last July.

– BUSINESS REPORT

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