South African Manufacturing Shows Slight PMI Uptick, But Cost and Confidence Pressures Mount
A flicker of improvement in South Africa’s manufacturing sector in March belies deepening concerns about cost pressures and collapsing business confidence, according to the latest Absa Purchasing Managers’ Index (PMI). The index, a key gauge of manufacturing health, rose 1.6 points to 49.0 from 47.4 in February. While this move away from the 50-point threshold—which separates expansion from contraction—is positive, the sector remains in a contractionary state and faces significant headwinds from global geopolitical tensions.
Breaking Down the March PMI Numbers
The rise to 49.0 was primarily driven by two components, according to the report sponsored by Absa and compiled by the independent Bureau for Economic Research (BER). A modest increase in the business activity index and a strong surge in the supplier delivery index lifted the headline figure.
However, the BER issued a stark warning about interpreting the supplier delivery index jump optimistically. “Given the ongoing weakness in new customer orders, it is unlikely that the increase in this index… reflects stronger demand,” the researchers stated. Instead, they argue the improvement “most likely points to ongoing supply chain disruptions and logistical constraints.” This nuance is critical; faster deliveries may indicate suppliers are struggling to move goods, not that factories are busier.
Soaring Input Costs and the Oil Price Shock
The most dramatic movement in the March survey was the purchasing price index, which skyrocketed by 20.7 points to 75.8. This is the highest level since early 2023 and the largest monthly increase recorded since September 1999. The BER directly attributes this to a double shock: a weaker South African rand and sharply higher international oil prices, particularly for oil-derived inputs, following the outbreak of conflict in the Middle East on February 28.
This cost surge arrived before the official announcement of April fuel price hikes by the Ministry of Mineral and Petroleum Resources, suggesting manufacturers were already feeling the acute impact of global oil market volatility. “As fuel price increases come into effect, input costs will remain elevated, putting additional pressure on manufacturers’ profitability and potentially contributing to broader inflationary pressures in the economy,” the BER cautioned.
Central Bank on Alert, Business Confidence Plummets
The persistent cost pressures immediately reverberated to monetary policy. Last week, the South African Reserve Bank (Sarb) held its benchmark repo rate at 6.75%. This decision defied widespread market expectations of a 25 basis point cut that existed prior to the Middle East conflict. Governor Lesetsa Kganyago explicitly cited emerging inflation risks from higher oil prices and hinted that a rate hike could be on the table later in the year if these pressures persist.
Perhaps the most alarming signal from the PMI survey was the collapse in sentiment. The expected business conditions index, which measures purchasing managers’ outlook for the next six months, plummeted by a record 22.9 points. This historic drop signifies a “significant deterioration in purchasing managers’ business confidence.” The BER noted that “many respondents expressed concerns about the potential impact of the ongoing Middle East conflict on both costs and demand.”
Key Takeaways and Risks Ahead
The March Absa PMI presents a conflicting picture. On one hand, the modest rise to 49.0 suggests the sector didn’t immediately seize up following the Middle East escalation. On the other, the data reveals an economy under severe strain from imported inflation and a crisis of confidence among its business leaders.
Critical risks identified in the report include:
- Geopolitical Supply Chain Threats: The potential for a “permanent closure of the Strait of Hormuz,” a critical oil shipping chokepoint, could further disrupt global supply chains and exacerbate cost increases.
- Squeezed Profit Margins: Manufacturers are caught between rising input costs (fuel, raw materials) and stagnant domestic demand, as indicated by weak new order volumes.
- Monetary Policy Tightening Risk: The Sarb’s shift to a more hawkish stance, driven by oil-price-linked inflation, threatens to dampen already fragile domestic demand further.
In summary, while the manufacturing sector avoided a sharp contraction in March, the foundation for growth is crumbling under the weight of geopolitical risk, soaring costs, and plummeting optimism. The path forward appears increasingly precarious.
(Karen Moolman)
