South African Manufacturing Sentiment Hits New Low as Absa PMI Signals Fourth Consecutive Contraction

South Africa’s manufacturing sector continues to face significant challenges, with business conditions deteriorating further in February 2024. According to the latest Absa Purchasing Managers’ Index (PMI), the seasonally-adjusted index fell to 44.7 points, down from 45.3 in January. This marks the fourth consecutive month of contraction, as the PMI remains below the critical 50-point threshold that separates expansion from contraction.

A Struggling Sector

The Absa PMI survey revealed that manufacturers are grappling with declining business activity, driven by weaker demand and ongoing supply chain issues. Export sales also fell further into contractionary territory, reflecting lower-than-expected global demand, trade disagreements, and persistent logistics challenges.

“The manufacturing sector has seemingly not picked up following its poor performance towards the end of last year,” Absa said in a statement. Respondents highlighted increased uncertainty about global trade dynamics, with some noting that heightened tensions between South Africa and the United States have worsened their prospects.

Global Trade Tensions Weigh Heavily

The strained relationship between South Africa and the U.S. has added to the sector’s woes. Last month, President Donald Trump cut U.S. financial assistance to South Africa, citing disapproval of the country’s land reform policies and its genocide case against Israel at the World Court. This move has further dampened sentiment among South African manufacturers, particularly those reliant on export markets.

Load Shedding Returns

Another factor contributing to the sector’s struggles is the return of scheduled power cuts, or load shedding, after months of consistent electricity supply. The resumption of power outages has disrupted production and added to the operational challenges faced by manufacturers.

Key PMI Components

The Absa PMI survey tracks several key indicators, all of which painted a bleak picture in February:

• Business Activity: Declined further due to weak demand and supply chain disruptions.
• New Sales Orders: Remained in contractionary territory, reflecting subdued domestic and international demand.
• Export Sales: Fell sharply, impacted by global trade tensions and logistics issues.
• Employment: Continued to shrink as manufacturers scaled back operations.
• Inventory Levels: Declined as businesses adjusted to lower demand.

Looking Ahead

The persistent contraction in the manufacturing sector underscores the need for urgent interventions to address both domestic and external challenges. While global trade tensions and logistics issues are beyond South Africa’s immediate control, resolving energy supply constraints and boosting local demand could provide some relief.

As the sector navigates these headwinds, policymakers and industry stakeholders must work together to create a more conducive environment for growth. This includes addressing infrastructure bottlenecks, improving trade relations, and supporting manufacturers in adapting to changing global dynamics.

The latest Absa PMI data highlights the ongoing struggles of South Africa’s manufacturing sector. With sentiment at a low and challenges mounting, the road to recovery remains uncertain. However, targeted interventions and collaborative efforts could help steer the sector toward a more sustainable future.

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