Financial services firm Absa's Purchasing Managers Index (PMI) increased to 51.7 points in February, from 43.6 in January, but business activity remains subdued.

Of the five subcomponents of the PMI, only suppliers' performance was above 50. However, encouragingly, new sales orders are almost at this mark, Absa points out.

Additionally, the survey tracks month-on-month movements and, with the January PMI having been so weak, a slight uptick in February would have resulted in a considerable increase in the indices, the bank states.

Business conditions could, however, remain more challenging than the long-term average experience, Absa warns.

Further, despite remaining in negative terrain for a second month, the business activity index recorded a solid increase to reach 48.6 in February.

However, even with the increase in February, the average for the first two months of the first quarter is below that of the fourth quarter and well below the 50-point mark. This means the sector may again record a slight contraction following marginal growth in the fourth quarter of 2023, the bank says.

Following a significant deterioration in January, new sales orders bounced back in February, rising to 49.9. Purchasing managers reported an increase in export sales after three consecutive declines, which likely supported the increase in overall orders.

New sales orders respondents were also more upbeat about exports, possibly signalling some alleviation of the congestion and disruptions at local harbours.

Further, also tracking higher, the employment index bounced back in February. The index, however, remains stuck below 50 for a fourteenth straight month, Absa notes.

The inventories index also improved, which may be owing to the port improvements, or to producers finding alternative ways to receive the required input products.

"The inventories index more than reversed January’s decline and rose to 48.9 points in February. The increase followed a steady decline since mid-2022, except for a temporary surge in April 2023.

"The coming months will tell whether this was also a temporary increase or the end of the downward trend," Absa adds.

Meanwhile, the supplier deliveries index edged up slightly to 62 points. It remains below the recent high of 67.7 seen in December and suggests supply chains are working slightly better compared to late last year. This index is inverted, however, and a decrease in supplier performance results in an increase in the index.

Additionally, the expected business conditions index rose once more, continuing a recent trend.

Meanwhile, the index that tracks expected conditions in six months’ time rose to 59.5, up from 58.7 in January, well above the recent low point of 41 reached in November, Absa says.

"The third consecutive uptick in purchasing prices is noteworthy. At 72.2, the index is now ten points above the fourth-quarter average," it highlights.

Further, the rand exchange rate weakened in February, especially towards the end of the month when the PMI survey took place. The rand pushes up the costs of imported inputs and materials.

Should these higher purchasing price index readings be sustained, there might be some upside risk to the factory gate inflation outlook, the bank notes.