The seasonally adjusted Absa Purchasing Managers’ Index has declined by 1.6 index points to 47.6 in June, marking the lowest level of the PMI since mid-2021.

This points to worsening business conditions in the sector, Absa explains, highlighting a key drag on sentiment as being weak demand.

The new sales orders index slipped down to 45.6 in June from 47.5 in May, coinciding with a decline in export sales and low domestic demand.

The business activity index improved from 47.7 in May to 48.9 in June, which was likely on the back of significantly less daytime loadshedding during the month. However, weak demand conditions have thwarted a bigger recovery in this subindex.

At a quarterly level, the business activity index suggests that momentum in official production data remained subdued in the second quarter, as it did in the first quarter.

Along with the slight improvement in business activity in May, there was also somewhat better news on the cost front, as the purchasing price index declined from 77 in May to 71.3 in June.

A stronger rand exchange rate month-on-month and a drop in the fuel price at the start of June likely contributed to the moderation in cost pressures, Absa says.

Following three months of little change, the employment index rose by 2.3 index points to 47.9 in June, while the inventories index dipped to 48.2 in June, from 51.1 in May and 58.8 in April.

The supplier deliveries index edged below the neutral mark for the first time since mid-2018, declining from 53.9 in May to 47.4 in June. Absa says the decline signals faster deliveries of raw materials and intermediate goods, which, in pre-pandemic times, was a sign of weak demand in the sector.

However, during the pandemic, the index surged and stayed high throughout 2021 and 2022, as global supply chains and local logistical issues strained delivery performance.

Recent PMI surveys suggest that global supply chains are working much better, which, in addition to weaker demand, likely contributed to a decline in the supplier deliveries index. Absa adds that faster deliveries result in a low index value in this case.

Another notable development in the June PMI survey was the turnaround in forward-looking sentiment. The index tracking expected business conditions in six months’ time rose from 43.7 in May to 51.4 in June, which is still well below the long-term average, “but at least it signals that purchasing managers expect conditions to look better by the end of the year, not worse”, Absa points out.