SA manufacturing activity slips to 11-month low as weak demand drags business sentiment

Business conditions in South Africa deteriorated sharply in December, with the S&P Global South Africa Purchasing Managers’ Index (PMI) falling to its weakest level in nearly a year as subdued demand weighed heavily on output and new orders.

S&P Global on Tuesday said the headline PMI declined to 47.7 in December from 49.0 in November, remaining below the 50-point mark that separates expansion from contraction and signalling a faster decline in private-sector activity.

The index has now been in contraction territory throughout the final quarter of the year, with December’s reading the lowest in 11 months.

According to S&P Global, the downturn was driven by a sharp fall in business activity, which contracted at its steepest pace since January. Survey respondents reported that challenging economic conditions and weaker client demand led to a broad-based decline in output across sectors.

S&P Global said new orders fell for a third consecutive month, with the pace of decline the sharpest since March 2024. Firms cited reduced household spending, pullbacks in business orders and weaker demand from international clients. Export sales also declined in December after recording a marginal increase in November.

As companies struggled to secure new work, many relied on existing orders to sustain activity. This resulted in a notable reduction in backlogs, with the rate of depletion accelerating to the fastest pace in more than five years.

Purchasing activity was scaled back in response to the softer operating environment, with firms cutting back on inputs at the quickest rate since March, although the decline was described as modest. Some respondents said overbuying in recent months, as well as resource shortages, had also contributed to lower purchasing volumes. Input inventories declined again during the month.

Despite the broader weakness, employment offered a rare bright spot. Jobs increased marginally for the third consecutive month, with the rise largely attributed to short-term hiring. Delivery times continued to improve, extending a run that began in April last year.

S&P Global said weaker demand for inputs helped strengthen supply chains, offsetting reports of shipment delays and shortages.

Inflationary pressures showed some signs of easing. Input costs rose at a slower pace than in November, partly reflecting an improvement in the rand against the US dollar, while firms implemented a softer increase in output prices.

David Owen, senior economist at S&P Global Market Intelligence, said the economy lost momentum in the final quarter of the year after a relatively strong earlier performance.

“After a strong couple of quarters, the South African economy experienced damper conditions in Q4, withbusiness activity declining for three months running," Owen said.

“The downturn has been mainly down to a pullback in demand, which deepened in December as customers reacted to an uplift in price pressures in the prior month and broader economic headwinds.”

Owen added that while firms became more cautious in their purchasing behaviour and reduced stock levels, the slight improvement in employment suggested some resilience.

“Subsequently, firms showed greater caution towards purchases, recording a fresh reduction in December, as well as a decrease in stock volumes. However, the employment picture was slightly brighter, with the data signalling a slight rise attributed to short-term hires,” he said.

Looking ahead, businesses remain cautiously optimistic about 2026.

Despite current pressures, survey respondents expressed confidence that the downturn in activity would ease over the next 12 months, supported by expectations of improved demand, reduced economic headwinds and new projects.

Business optimism remained above its long-term average, although it softened slightly compared with November.

BUSINESS REPORT