South Africa's Manufacturing Sector Contraction Raises Concerns

The PMI is a crucial indicator of business conditions in South Africa. The decline is a concern, as it suggests manufacturing output remained under pressure for the second consecutive quarter."

• Prof Simphiwe Madikizela, Professor of Economics at UNISA.

The single sharpest fact in South Africa's manufacturing sector is that the Absa Purchasing Managers' Index (PMI) plummeted from 50.8 to 47.3 in June 2026, entering contractionary territory. This is a worrying trend for the sector, which has been struggling with economic pressures.

Experts attribute the decline to the easing of tensions in the Middle East, which led to a sharp drop in oil prices. According to Waldo Krugell, a North West University Business School economist, the index reflects the ebb and flow of global politics and the oil price. "

Subindices show that purchasing prices declined as the oil price and fuel price came down in June. New sales orders and the inventory levels show that purchasing managers were waiting for lower prices," Krugell explained.

However, the decline in new sales orders is a concern, as it suggests that clients are now postponing purchases in anticipation of lower prices. This is a classic case of economic uncertainty, where businesses are holding back on investments and purchases due to lack of confidence.

The seasonally adjusted headline PMI fell into contractionary territory in June, with business activity lifting modestly by 2.1 points. However, the index remains below 50, in contractionary terrain, suggesting that manufacturing output was likely under pressure again in the second quarter.

The employment index reading slumped to 41.4, with Prof Simphiwe Madikizela, Professor of Economics at UNISA, saying that it's a concern that the PMI has declined, although the agreement has just been signed, its impact has not been seen as yet into the economy.

The average business activity index for Q2 remained broadly unchanged from Q1, when official manufacturing production contracted, suggesting manufacturing output likely remained under pressure for a second consecutive quarter. "

Manufacturers' own inventory levels also declined, suggesting purchasing managers were perhaps also waiting for price declines," Absa said.

Lara Hodes, Investec economist, added that the supplier deliveries sub-index came down slightly from levels recorded in April and May but remained high at 60.0. The index is inverted, with a higher index reading reflecting slower deliveries.

Given the still fragile global environment, the still elevated reading likely suggests that supply chains have not yet normalized. This is a sign that businesses are still struggling to cope with the uncertainty in the global market.

Waldo Krugell added that there was a slight improvement in business activity and manufacturing remains under pressure in the second quarter. The encouraging part is that with all this anticipation of lower oil and fuel prices, and the expectation of an uptick in business later on, the expected business conditions sub-index again improved, which I think is good news for economic activity in the second half of the year.

The expected business conditions index, which tracks expectations six months ahead, rose from 52.9 to 56.6 and is now more than 10 points above the March level. However, it is still 10 points below where it started the year.

The upcoming protests were flagged by some respondents as a key concern and likely weighed on sentiment. The protests, scheduled for June 30, added to the uncertainty in the market and may have contributed to the decline in the PMI.

The Absa PMI report suggests that the manufacturing sector in South Africa is struggling to cope with economic pressures. The decline in the PMI is a concern, as it suggests that manufacturing output remained under pressure for the second consecutive quarter.

Lara Hodes added that the employment index reading slumped to 41.4, with the ongoing war leading to high levels of uncertainty globally, weighing on confidence, and accordingly businesses are likely to have deferred the hiring of new employees in the near term.

Prof Simphiwe Madikizela said that it's a concern that the PMI has declined although the agreement has just been signed, its impact has not been seen as yet into the economy. However, the decrease in crude oil prices and strengthening rand are good signs, which led to a reduction in the prices of both petrol and diesel on Wednesday.

The Absa PMI report suggests that the manufacturing sector in South Africa is struggling to cope with economic pressures. The decline in the PMI is a concern, as it suggests that manufacturing output remained under pressure for the second consecutive quarter.

The expected business conditions index, which tracks expectations six months ahead, rose from 52.9 to 56.6 and is now more than 10 points above the March level. However, it is still 10 points below where it started the year.

The upcoming protests were flagged by some respondents as a key concern and likely weighed on sentiment. The protests, scheduled for June 30, added to the uncertainty in the market and may have contributed to the decline in the PMI.

The economic impact of the Middle East tensions is still being felt in South Africa, with the decline in the PMI suggesting that manufacturing output remained under pressure for the second consecutive quarter.

The employment index reading slumped to 41.4, with the ongoing war leading to high levels of uncertainty globally, weighing on confidence, and accordingly businesses are likely to have deferred the hiring of new employees in the near term.