Manufacturing sentiment in South Africa improves as business conditions steady in July

The S&P Global South Africa Purchasing Managers’ Index (PMI) edged up to 50.3 in July, from 50.1 in June, marking a slight but noteworthy improvement in the country's business conditions.

This is in line with the latest seasonally adjusted Absa PMI, which increased by 2.3 points to 50.8 in July, following eight consecutive months in contractionary territory.

With three consecutive months of growth above the neutral 50.0 mark, the latest S&P Global PMI results suggest a stabilising environment despite ongoing economic challenges.

The index, which serves as a comprehensive indicator of the operating conditions in the private sector, reflects a blend of positive trends, particularly in new business and employment.

S&P said the growth was predominantly driven by an uptick in new orders, as several firms observed revitalised client activity.

Nevertheless, reports indicate that the broader economic landscape remains challenging, with various sectors experiencing divergent performances.

While the services and wholesale and retail sectors saw expansion, industries such as construction faced downturns. Furthermore, although domestic sales improved, new export business has dwindled for the fourth straight month, hinting at potential headwinds in international trade.

Output levels, albeit broadly unchanged, signify an upward movement since June, when a minor decrease was noted. July witnessed firms raising their employment figures for the second consecutive month, marking the swiftest growth in hiring since May 2024.

This hiring surge was attributed to stabilising supply chains, with improved vendor performance observed for the fourth month in a row—highlighting easing port congestion that has historically stricken South Africa's logistics.

David Owen, senior economist at S&P Global Market Intelligence, said business conditions across South Africa improved in July, driven by greater sales and increased employment.

Owen said the rise in staffing was the fastest for over a year, showing that firms were more willing to take on new workers in order to boost their capacity and competitiveness.

"This nevertheless had an adverse impact on costs aswage inflation accelerated, leading to quickest rise inbusiness expenses since April. However, the increasein charges remained modest and even softened, whichsuggests that firms largely expect this cost jump to betemporary," Owen said.

"There was also a solid recovery in business expectations in July, after the survey metric dropped to its lowest level since mid-2021 in June. Firms highlighted a slight improvement in the demand outlook, although there werestill concerns about global trade policy and exchange rate movements."

As companies worked to fulfil current orders, S&P said backlogs declined at the fastest pace since February, allowing some businesses to destock unused inputs. This contributed to a slight decline in total inventories, revealing a potential shift towards leaner operational strategies.

However, as positive signs emerge, cost pressures have intensified. The July survey indicated a marked increase in price levels, fuelled mainly by rising staff costs. Wage pressures have surged for three consecutive months and remain significantly above average. In tandem, purchase costs have risen due to increased charges for fuel and materials, pushing the rate of input price inflation to its highest since April.

Reflecting these rising costs, S&P said companies have begun transferring some of the financial burden to clients, leading to a modest rise in output prices, although this increase was slightly weaker than that recorded in the previous month. Notably, the construction sector displayed a contrasting trend, experiencing both decreases in input costs and output prices.

Looking ahead, confidence has rebounded as businesses became more optimistic about the future. The year-ahead assessment for business activity improved notably in July, the highest since January, following a low point in June, suggesting that firms anticipate greater demand and upcoming projects.

While the optimism is promising, it remains below last year's average, indicating persistent caution as the broader economic context remains uncertain.

BUSINESS REPORT