Price pressures also indicated a relatively rosy outlook, despite input prices rising significantly due to heightened wages and shipping fees. Picture: Nqobile Mbonambi/Independent Newspapers
South Africa’s economic landscape entered 2025 with ominous signs as a marked decline in client demand resulted in significant reductions in the manufacturing business output.
According to the latest S&P Global South Africa Purchasing Managers’ Index (PMI), released on Wednesday, the index plummeted to 47.4 in January, down from 49.9 in December.
This figure, remaining below the neutral 50.0 threshold for the second consecutive month, marked the country’s lowest reading since July 2021.
The S&P report highlights that the downturn in operating conditions was primarily linked to a sharp pull-back in client demand. The contraction of new business was particularly stark, reflecting the most considerable decline since March 2024.
Anecdotal evidence from panellists pointed to diminished customer incomes, which were hampering sales, in addition to a persistent decrease in foreign demand, registered through a fifth successive drop in new export orders.
Amidst these challenges, private sector activity experienced a notable downturn, with the decline representing the sharpest recorded rate in three-and-a-half years.
The only sector to counter this negative trend was industry, which observed a rise in output, contrasting sharply with the decline seen within the services sector.
Faced with slumping sales, businesses shifted their focus to clearing accumulated orders, resulting in a significant reduction in outstanding work. The decrease in work-in-hand was the joint-fastest recorded in over four years, fulfilling expectations set when similar data was reported in September 2024.
Furthermore, a shift in operational focus led to measures such as cutting back on employee numbers and reducing the procurement of inputs, especially within the services and construction sectors. However, the reductions in employment were described as mild and primarily reflected firms’ moves to lower their reliance on short-term staff.
David Owen, senior economist at S&P Global Market Intelligence, said the latest PMI survey data pointed to a subdued start to 2025 for the private sector economy.
Owen said new orders dropped solidly, leading to a marked cutback in output, with weakness especially observed among service sector businesses.
“The findings suggest that firms are facing challenges recouping customers in the new year, which could act as a brake on growth in the first quarter. However, there are some positive takeaways from the latest data, especially on supply and inflation,” Owen said.
“The slow start to the year helped a number of suppliers overcome backlogs, leading to the best vendor performance since last April. The rate of increase in firms' input prices was meanwhile relatively modest, resulting in a slower uptick in average selling charges. The inflation outlook appears promising, although US dollar exchange rates may be volatile in the near term as the Trump administration sets out its fiscal and foreign policy, which could aggravate purchase prices.”
January’s survey data suggested improvements for domestic supply chains, which had previously suffered due to port congestion and challenging shipping conditions.
Average delivery times improved at a historically mild rate, marking the weakest delay recorded in nine months. Some respondents also suggested that the drop in demand eased vendor restrictions and bottlenecks.
Price pressures also indicated a relatively rosy outlook, despite input prices rising significantly due to heightened wages and shipping fees. The rate of inflation saw a moderation from its long-term trend and a decrease from figures seen in December.
Average selling prices exhibited robustness, with a notable uplift seen for the third consecutive month, though this was the least pronounced rise over this period.
Optimism for future activity gathered momentum, with 41% of panellists expressing positive expectations for the coming months, compared to just 3% predicting a downturn. However, this uptick indicated only a modest recovery from December’s 20-month low, leaving many firms sceptical about the demand trajectory moving forward.
BUSINESS REPORT