Absa’s purchasing managers index for February came in well below expectations as stubborn economic headwinds drove activity in the manufacturing sector back into contractionary territory.
The disappointing PMI reading suggests that despite a hopeful start to 2026, local factories remain too cautious about their outlook to increase investment or hire new workers, said the Stellenbosch-based Bureau of Economic Research (BER).
“The drop in business activity in February suggests January’s rebound was not sustained,” said chief economist Lisette IJssel de Schepper.
She found the main constraints on local manufacturers were still weak domestic and external demand, which caused manufacturing sentiment to end 2025 at its lowest level in six years.
“Firms simply do not have sufficient order momentum to justify ramping up production — that’s why output continues to show a stop-start pattern,” she said.
Despite a sustained absence of load-shedding and some uptick in Transnet’s performance, some respondents said localised electricity disruptions and port delays added to operating uncertainty in February.
“While the average business activity reading for the first two months of 2026 is better than in the fourth quarter, it still points to contraction, just at a slower pace,” said IJssel de Schepper.
“Conditions are less severe than late last year, but we are not yet seeing a convincing recovery.”
The data released on Monday showed the headline index declining from 48.7 to 47.4 in February, owing primarily to a weakening in business activity and employment.
A reading below the neutral 50 means manufacturing activity is contracting, or overall business conditions in the sector are deteriorating.
Of particular concern was the PMI’s business activity index, which slipped back below 50, reversing all of January’s gains.
In 2025, this subindex remained in contractionary territory for 11 months.
Another laggard was employment, which fell from 43.9 to 42.5. This means factory hiring is unlikely to recover from a weak Q4 in 2025.
The findings come amid a rapid acceleration in US-Israeli hostilities, threatening a surge in oil prices and disrupted supply chains and adding to local manufacturers’ uncertain outlook.
IJssel de Schepper said the most glaring concern in the near term would be oil, with higher crude prices translating into fuel price increases in April, raising transport and input costs.
“That could squeeze margins and weigh further on activity. There is also a risk to shipping routes and broader supply chains, which could delay orders,” she said.
“That said, business expectations were relatively upbeat before the Iran developments, suggesting firms anticipated improvement in conditions.
“If geopolitical tensions escalate further or oil prices remain elevated for an extended period, the recovery could easily be delayed.” - Business Day
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