Activity in South African factories is contracting further, showed the Absa Purchasing Managers Index for January although manufacturers remain optimistic of business conditions going forward.

Data from the Bureau of Economic Research (BER) showed the Absa PMI losing a further 0.9 points in January to 45.3 points, the lowest reading since August 2024, according to the BER, this “suggests that the loss of momentum observed at the end of 2024 has not reversed at the start” of the new year.

“While activity and orders rose, the other three components of the headline PMI declined. The supplier deliveries index decreased by 6.1 points to 49.9 points,” said BER.

Given the logistics issues flagged by respondents, this pointed to weaker demand for supplied goods.

Furthermore, the employment index decreased by 2 points to 44.4 and remained in contractionary territory for the tenth consecutive month. This shows that employment contracted during the first three quarters of 2024.

BER said this suggests that “it will take some time to recover” while the inventories index also declined further to 46.5 from 50.7 points before.

Although export sales recovered slightly, respondents flagged issues hurting production and demand, including trade disruptions with Mozambique due to the political turmoil and fuel shortages affecting air freight.

“The upcoming closure of ArcelorMittal’s longs business in SA was flagged as potentially impacting some producers over the next six to 12 months,” noted the Absa PMI.

Lara Hodes, an economist with Investec, however, noted that the PMI decline for January 2025 “was not underpinned by a decrease in activity” and new orders.

“The business activity and new sales orders’ indices picked up moderately during the month but remained in contractionary territory, with exports sales improving marginally but remaining below November’s reading. Purchasing prices picked up at the start of 2025, increasing by a notable 7.8 points to 68.2, underpinned by an increase in fuel prices, with a further notable hike expected for both petrol and diesel in February, which will add further upside cost pressure,” said Hodes.

The index measuring anticipated business conditions in six months’ time also slid in January, but remained in expansionary territory, suggesting that manufacturers remain “somewhat positive about business conditions” going forward.

“Uncertainties about global trade dynamics could have added to the drop,” added the BER.

According to PwC, the manufacturing sector “contributes 13% of South Africa’s gross domestic product (GDP) and will continue to play a significant role” in the economy.

The sector’s nominal GDP is forecast to grow by an average rate of 5.7% per annum over the next 10 years, noted PwC in its 2024 South Africa Manufacturing Analysis report.

It noted that significant future growth opportunities were available through localisation and workforce upskilling. The sector’s market capitalisation had risen in 2024 by 0.57% to R550.08 billion, mainly due to increases in the paper and wood, speciality pharma and packaged foods industries.

BUSINESS REPORT