South Africa's manufacturing sentiment took another hit this February, continuing its downward trend as indicated by the Purchasing Managers' Index (PMI), which fell to 44.7 from 45.3 the month prior. This marks the fifth consecutive month of contraction, reflecting growing concerns about global trade dynamics, strained relations with the U.S., and the resurgence of power cuts across the nation.
According to the Absa Group Ltd.’s PMI report, compiled by the Bureau for Economic Research, the data expresses the prevailing anxiety within the manufacturing sector. "This is the fourth consecutive contraction, as activity remains subdued," Absa noted, highlighting the deteriorated business conditions since the sector's peak of 53.3 in September 2024.
The PMI serves as a snapshot of current business activity and sentiment, measuring factors such as new sales orders and employment. The survey revealed significant declines across several indices, with business activity dropping to 40.6 from 43.5, new sales orders plunging to 38.7 from 42, and the employment index sliding to 42.2 from 44.4. Notably, the measure tracking anticipated business conditions six months out also fell to 60.5 from 64.9.
Manufacturers expressed their concerns surrounding uncertain demand and input supply issues, exacerbated by recent developments in U.S.-South Africa relations. The U.S. President's threats of imposing tariffs and the suspension of financial aid have stirred fears about the future of trade agreements. Absa's report explained how uncertainties about global trade dynamics continued to loom large, with some respondents particularly noting increased tensions with the United States as detrimental to their prospects.
After months of consistent energy supply, South Africa has once again been hit by scheduled power cuts, locally termed load-shedding. This return, which hit the manufacturing sector heavily, has adversely affected operations, adding strains to already weakened demand for manufactured goods.
The environment of economic doubt has not only stifled production levels but also worsened sentiment overall. While the economic instability brought on by the pandemic had previously caused turbulence, the re-emergence of power interruptions seems to be compounding challenges manufacturing plants face.
The manufacturing industry is now bearing the brunt of these factors, which have combined to significantly dampen production lines and sales. Final PMI figures show the business activity index falling deeply, with most firms pointing toward low demand and disruptions as key challenges hindering recovery.
Analysts have stated the rand has displayed some strength against the U.S. dollar—even as concerns grow over global uncertainty. On Monday morning, the rand was trading at 18.66 against the dollar, representing about 0.3% strength. Investors are keeping close tabs on President Trump's tariff policies, the protraction of conflict surrounding Ukraine, and signals of potential downturns within the U.S. economy.
The Johannesburg Stock Exchange reported moderate changes as South Africa's Top-40 index noted an uptick of around 0.9%. Meanwhile, long-term government bonds observed minor weakening, reflecting continued investor concern amid fluctuated global markets.
Despite the immediate opportunities for adaptation and growth, longer-term outlooks for the local manufacturing sector appear grim under current circumstances. Insights from Absa express concerns over persistent global trade uncertainties and changing dynamics, positioning the industry on shaky ground.
With continued contraction evident across several economic indicators, the South African manufacturing sector faces significant challenges. The interplay between international relations, domestic energy supply issues, and trade tensions reveals broader trends affecting local producers.
Until these issues are resolved, many manufacturers remain skeptical about future recovery, fearing they may be subjected to prolonged periods of instability and uncertainty. It remains to be seen how businesses will navigate these turbulent waters and what steps will be taken to restore confidence and activity within the sector.