Factory activity dipped back into contraction in August, with the Absa purchasing managers’ index (PMI) falling to 49.5, as manufacturers struggled with weak demand and renewed external pressures — including the reinstatement of US tariffs on exports.
The decline reversed part of July’s gain when the index had edged into expansionary territory for the first time in nine months.
However, with September still to come, the third-quarter PMI average so far stands at 50.2, higher than the second-quarter’s 45.4.
New sales orders — which had surged unexpectedly in July — fell sharply by 8.5 points to 47.4.
The Bureau for Economic Research (BER) noted domestic and export demand remain under pressure. While not all manufacturers are directly affected by the revived Trump-era tariffs on exports, several respondents cited knock-on effects through affected clients and broader trade uncertainty. Before July new sales orders had not been in expansionary territory since October 2024.
“Domestic conditions remain subdued in a low growth environment, while globally the uncertainty about the effect of tariffs has weighed on demand,” said Investec economist Lara Hodes.
“Tariff uncertainty will remain front of mind for business leaders in [the second half of] 2025, especially after the US slapped 30% import tariffs on SA goods, making it unlikely that general sentiment will improve meaningfully in the near term,” said Oxford Economics senior economist Jee-A van der Linde.
“As such, we maintain our below-consensus 2025 real GDP growth forecast of 0.8% as the disruptive impact of US tariffs will continue to undermine domestic economic activity in [the second half of] 2025.”
Why factory activity matters
- Growth signal: Contraction in factories points to weaker domestic and export demand.
- Jobs impact: Sluggish output keeps employment below meaningful growth levels.
- Trade link: US tariffs and global uncertainty weigh on manufacturers.
- Investor outlook: Factory trends shape confidence, investment, and economic recovery.
Business activity also declined, slipping 1.3 points to 45.8, marking 10 consecutive months of contraction. Respondents reported ongoing competition from cheaper imports.
There was a notable improvement in employment however, with the index rising 5.2 points to 48.9. Despite the gain, job growth remains below the 50-point threshold and is unlikely to recover meaningfully without sustained demand.
“It has been in negative terrain for over a year. A lift in confidence, driving investment and accordingly growth is imperative to lift employment numbers,” said Hodes.
Inventories rose for a second month to 52.4 as some firms continued to build up stock in anticipation of future improvements in trade and logistics.
Supplier deliveries declined by 3.5 points to 53, but the BER noted this is likely to reflect weaker demand rather than improved logistical efficiency. Regulatory delays continue to pose supply-side constraints.
Input cost pressures eased slightly. The purchasing price index dipped to 58.5, down 0.8 points, helped by a stronger rand and stable international oil prices, though the local fuel price picture was mixed. Petrol users benefited from lower prices in August, while diesel users saw less relief.
In a modestly positive signal, the index tracking expected business conditions in six months rose slightly to 56.8 — suggesting some stability in longer-term sentiment despite headwinds.
Update: September 1 2025
This story has been updated with more comment.
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