South African manufacturers ended 2023 with a boost due to increased business activity, with hopes for the first half of 2024 looking optimistic.

The Absa Purchasing Managers’s Index (PMI) rose by 2.7 points to 50.9 index points – above the neutral reading of 50 – in December 2023, partially due to the encouraging increase in business activity.

The business activity index grew from 46 in November to 51.4 in December.

“Businesses operating through the festive period may have benefitted from relatively less load-shedding in December,” Absa said.

However, with new sales orders not improving following a solid increase in November, underlying demand for manufactured goods remains relatively weak. The new sales orders index dropped slightly from 46.6 in November to 46.3 in December.

Thus, time will tell if the improvement in business activity continues in 2024.

The employment index was still below 50 points at 44.8 despite an improvement from 41.1 in November.

“Worryingly, the intensifying crisis at South Africa’s ports seems to have contributed to supplier delivery times lengthening even further. The unavailability of inputs required could hurt production abilities and push up costs going forward,” Absa said.

That said, respondents were increasingly optimistic about business conditions over the longer term.

The index tracking expected business conditions in six months rose by 16.9 points to 57.9 – the best level since the 63.8 points seen last January.

“It could reflect some hope that the worst of the local rail and port challenges will be behind us by mid-2024 and that load-shedding could be less intense than last winter. More subdued inflation and lower borrowing costs (domestically and globally) could also help on the cost front and spur demand,” Absa said.

“Still, the magnitude of the increase is significant. Regarding the current level of the index, it is perhaps useful to flag that the index remains below its long-term average, so while purchasing managers are notably more optimistic than through most of 2023, they are still not excessively upbeat.”

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