Home South African Expected uptick in conditions driving manufacturing confidence to two-year high

Expected uptick in conditions driving manufacturing confidence to two-year high

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Sentiment in the manufacturing industry in South Africa has risen to its highest in more than two years as business conditions are expected to improve significantly in the next six months.

The Prestige Clothing factory in Maitland, Cape Town, deals with local manufacturing and exports. File picture: Armad Hough, Independent Newspapers

SENTIMENT in the manufacturing industry in South Africa has risen to its highest in more than two years as business conditions are expected to improve significantly in the next six months.

This is in spite of manufacturing activity shrinking for a second month in a row in June and remained in contractionary territory amid subdued demand conditions.

The seasonally adjusted Absa Purchasing Managers’ Index (PMI) inched up by 1.9 points to reach 45.7 points in June compared to 43.8 in May, remaining below 50 points which separates contraction from expansion.

This May and June manufacturing print followed a very strong start to the second quarter of 54.0 points in April, which was also reflected in solid growth in official manufacturing production data.

Absa said insufficient demand seemed to have weighed heavily on the sector’s performance despite the stable electricity supply through the second quarter.

According to Absa, the business activity index declined further to 36.3 points in June from 38.1 points in May, very downbeat following the strong start to the second quarter.

The employment index improved slightly, gaining 2.8 points as the stable electricity supply may have motivated this, but Absa said further gains were unlikely without a sustained increase in activity.

Furthermore, new sales orders remained muted, edging up to 37.9 points in June from 37.8 points in May.

“Many comments from respondents flag depressed demand conditions. Export sales have been stuck below the neutral 50-point mark for four consecutive months, suggesting that the weakness is not just coming from domestic demand,” Absa said.

“While the election results were known at the time of the survey (which was not the case in May), the uncertainty around the composition of the new administration remained. This could have extended the ‘wait and see’ approach noted in May, and delayed orders.”

Meanwhile, Absa said supplier deliveries were worsening as port issues likely remain a concern.

For example, Absa said only seven of the 16 ship-to-shore cranes were operating at the Durban Container Terminal (DCT), and around 55 straddle carriers were available compared to the planned 67.

This meant deliveries took longer to arrive, with the index measuring suppliers’ performance increasing from 55.4 in May to 56.1 in June.

The more positive news was that the purchasing price index declined for a third consecutive month, falling to 64.5 points in June from 66.9 in May.

This was the lowest reading in six months, indicating that recent signs of easing cost pressure have been sustained.

At the beginning of June, petrol prices fell 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.

Absa also said further good news was that the index for expected business conditions in six months had increased to 68.1 points in June from 57.6 in May.

This is essentially the only measure in the survey that tracks sentiment, and the significant increase bodes well.

“Indeed, respondents have not been this optimistic about business conditions since early 2022,” Absa said.

“The prevailing political uncertainty (at the time of the survey in the last week of June) should have diminished over this time period, and there could be hope that domestic and global demand could look better amid expected monetary policy easing,” it said.

– BUSINESS REPORT

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