The manufacturing sector in South Africa ended the year on a dull note as private sector firms registered the first decline in business activity in four months and fell into contractionary territory.
After signalling growth in each of the previous four months, the S&P Global South Africa Purchasing Managers’ Index (PMI) dropped below the 50.0 neutral threshold at the end of 2024 to 49.9 in December, down from 50.9 in November, signalling a fractional decline in private sector business conditions.
According to S&P Global, muted demand conditions led to a stalling of sales growth and a pull-back in hiring.
S&P yesterday said that the sector was also influenced by a rise in inflationary pressures, as quickening cost burdens drove a solid uptick in firms' selling prices.
The drop-off in growth appeared to soften the outlook for 2025 among surveyed businesses, with confidence easing further from its recent multi-year highs.
On a positive note, supply chain pressures showed signs of easing, which encouraged firms to purchase additional inputs
David Owen, senior economist at S&P Global Market Intelligence, said the December's PMI data suggest that the South African economy may have lost a little bit of steam at the end of 2024.
“New orders failed to grow after going on an impressive run in the latter stages of the year, as firms highlighted a more muted demand environment. They also faced accelerated cost pressures, as wage inflation quickened, and material and transport prices rose,” Owen said.
“Nevertheless, the final quarter of 2024 was an encouraging one for businesses on the whole. The fourth quarter PMI average of 50.5 is the strongest recorded since Q3 2022, which gives some confidence that GDP growth will improve after a contraction last quarter. Inflation metrics, despite rising, are still comfortably below their long-run trend levels, and there is little at present to imply these will pick up sharply in the near term.”
Consistent with the headline PMI, the seasonally adjusted New Orders sub-index indicated a stalling of sales growth in December.
S&P said anecdotal reports suggested that quiet market conditions dampened order book intakes, alongside a further contraction in new export business. The drop in sales ended a four-month sequence of expansion, which had been the longest observed by the survey in more than two years.
In response, South African businesses curtailed their output levels in the final month of 2024 and the reduction was the first seen since August, though marginal.
Concurrently, after the first rise in six months in November, job numbers were held largely stable. Sector data showed that weakness in the private sector was broad, with construction firms seeing the fastest contractions in output and sales. There was some positivity in services though, where a slight uptick in new work was noted.
Meanwhile, the survey data signalled a faster rise in input costs at the end of the year. The rate of inflation was the highest in four months, with staff pay and purchase price inflation both quickening from November.
However, after running at historically muted levels in recent months, the degree to which costs rose was still much weaker than the survey's trend pace. Rising input costs precipitated a solid mark-up in output charges in December. Like costs though, the rate of charge inflation was less marked than its long-run norm.
Nonetheless, South African companies remained positive overall about future business activity in December, with just over a third of panellists expecting an expansion in output over 2025.
That said, after reaching a 30-month high last August, the degree of confidence fell for the third time in four months amid some hesitancy from surveyed businesses regarding future sales volumes.
BUSINESS REPORT