The modest recovery was largely driven by a slight improvement in business activity and a sharp rise in the supplier deliveries index.
Image: David Ritchie/Independent Newspapers.
South Africa’s manufacturing sector showed tentative signs of stabilisation in March, but rising costs, weakening demand and declining business confidence continue to cloud the outlook.
This is according to the latest Absa Purchasing Managers’ Index (PMI), compiled by the Bureau for Economic Research (BER) and sponsored by Absa, released on Wednesday.
The headline PMI increased by 1.6 points to 49 in March, up from 47.4 in February. While the uptick suggests some improvement in activity, the index remains below the neutral 50-point mark, indicating that the sector is still in contraction territory.
The modest recovery was largely driven by a slight improvement in business activity and a sharp rise in the supplier deliveries index.
However, economists caution that the latter may not be a positive signal. Because the supplier deliveries index is inverted, a rise typically indicates slower deliveries. In the current context of weak demand, this likely reflects ongoing supply chain disruptions rather than increased production pressure.
Concerns about global logistics are intensifying, particularly amid geopolitical tensions in the Middle East. Analysts warn that any prolonged disruption to key shipping routes, such as the Strait of Hormuz, could further strain supply chains and exacerbate delays in input deliveries.
Despite the marginal improvement in the headline index, underlying demand conditions remain weak.
The new sales orders index declined slightly to 44.5 in March, continuing its downward trend and signalling subdued demand for manufactured goods.
Export sales also deteriorated after a brief improvement in February, with some firms noting that earlier gains were due to front-loaded orders that may reverse in the coming months.
The recently released Eurozone Manufacturing PMI, a key for SA’s manufactured goods, shows a deterioration in business confidence amongst manufacturers in March, owing to the conflict in the Middle East. A surge in input prices was noted, as well as an increase in supplier delivery times.
Business activity, while slightly higher at 46.1, has yet to recover from the sharp drop recorded in February.
On a more positive note, the average level of activity in the first quarter of 2026 was stronger than in the final quarter of 2025, suggesting that the sector has made a somewhat better start to the year.
Employment conditions remain fragile. The employment index edged up marginally to 43.3, recovering some of the losses seen in February but still pointing to ongoing job shedding in the sector.
One of the most concerning developments in the March survey is the surge in input costs. The purchasing price index jumped by 20.7 points to 75.8, the largest increase on record since the survey began in 1999. This sharp rise reflects a combination of a weaker rand and higher international oil prices, particularly affecting oil-derived inputs such as polymers.
With significant fuel price increases taking effect at the start of April, cost pressures are expected to remain elevated in the coming months. This could squeeze profit margins for manufacturers and potentially feed into broader inflation across the economy.
At the same time, business confidence has deteriorated sharply. The expected business conditions index plunged by 22.9 points in March, marking the steepest decline on record. Survey respondents cited growing uncertainty around the global economic environment and the potential impact of the Middle East conflict on both costs and demand.
Inventory levels showed a modest increase, with the index rising to 48.8, continuing a trend of relative stability over the past six months. However, this stability does little to offset broader concerns about weak demand and rising input costs.
Overall, the March PMI paints a picture of a manufacturing sector caught between fragile recovery and mounting headwinds. While production levels are showing early signs of improvement, persistent supply chain challenges, weakening demand and sharply rising costs are likely to limit any near-term rebound.
Economists have cautioned that unless demand conditions improve and cost pressures ease, the sector may struggle to return to sustained growth. Much will depend on global developments, particularly energy prices and geopolitical stability, as well as domestic factors such as currency movements and fuel costs.
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