South Africa's manufacturing sector experienced a decline in sentiment and production momentum in May. The Absa Purchasing Managers' Index (PMI), compiled by the Bureau for Economic Research (BER), decreased by 1.8 points to 50.8, down from 52.6 in April. Despite this drop, the PMI remained above the 50-point threshold, indicating a marginal expansion for a second consecutive month. This downturn was primarily attributed to weakening demand, as the boost manufacturers received in April from customers bringing forward purchases ahead of anticipated price increases did not carry over into May.
Several key components of the PMI reflected this softening. The business activity index fell sharply by 9.3 points to 43.5, slipping back into contraction after two months of improvement, indicating reduced production. New sales orders also declined significantly, dropping by 8.3 points to 44.6, aligning with concerns that April's demand was temporarily inflated. While the employment index showed a positive trend, rising for a second consecutive month to 48.4, it remained below the neutral 50-point mark.
Manufacturers continued to face significant cost pressures, with the purchasing price index easing only slightly to 84.8 from 85.6. This indicated a continued substantial increase in input costs compared to the beginning of the year, despite an expected decline in diesel prices. Supply chain disruptions, partly due to the Iran war affecting the Strait of Hormuz, also persisted, as evidenced by the elevated supplier deliveries index at 61.6, signifying slower deliveries. Inventories rose to 55.8, the highest since early 2023, likely reflecting precautionary stocking rather than expectations of stronger future demand. Despite the weaker current conditions, the index measuring expected business conditions in six months improved, rising to 52.9 from 47.4, suggesting managers anticipate better conditions by year-end.
