The seasonally adjusted Absa Purchasing Managers’ Index (PMI) remained above the neutral 50-point mark for a second consecutive month, although the index declined by 1.8 points to 50.8 in May from 52.6 in April.

While still notably better than the first-quarter average of 48.3, the underlying survey results pointed to a deterioration in conditions from April to May.

Absa notes that, in April, manufacturers benefited from demand being brought forward in anticipation of further cost increases, but this effect faded in May. Some respondents warned that the recent weakness in demand could persist in the coming months.

Manufacturers also increased stocks, with the inventories index ticking up to 55.8 points – the highest level since early 2023.

As in April, higher inventories contributed positively to the headline PMI, but Absa says this likely reflects pre-emptive buying rather than expectations of stronger future demand.

The purchasing price index halted its recent steep ascent, edging down by 0.8 points. Absa says this, nevertheless, still points to a significant increase in cost pressure relative to the start of the year.

Absa adds that the expected decline in diesel prices later this week should provide near-term relief, but many respondents in May reported higher costs beyond fuel, such as more expensive courier services and surcharges added to other goods and services.

Meanwhile, the most positive outcome of the May PMI survey was that the expected business conditions index rose above the neutral 50-point mark. Absa says this suggests that purchasing managers expect business conditions to be better by year-end than they are today.

The index rose from 47.4 to 52.9. In February, before tensions in the Middle East escalated, it stood at 68.8.

Following two encouraging improvements, the business activity index declined in May. Absa explains that the drop back in production was likely driven by the decline in demand.

Moreover, as some respondents had warned in April, the PMI indicates that last month’s demand increase did not carry over into May. In April, some respondents noted that orders were likely brought forward ahead of expected price increases.

These orders subsequently declined in May, resulting in a decline in the new sales orders index.

Absa says the index is now back in line with its first-quarter average. Encouragingly, export sales improved somewhat in May compared with the first quarter, though they remain in negative territory.

Additionally, the employment index improved, rising for a second consecutive month, despite weaker activity and orders. While the index remained below 50 points, it is currently at its best level since mid-2025.

The inventories index rose further and is now almost ten points above where it started the year. Absa notes that purchasing managers likely stocked up on raw materials and intermediate goods used in the production process in anticipation of price increases.

This means that higher inventories contributed positively to the headline PMI, as they did last month. However, this likely reflects pre-emptive buying rather than an expectation of needing to meet higher demand in the future.

Further, the index notes that the supplier deliveries index remained largely unchanged at a high level for the second month in a row, following a sharp increase in March.

The sharp increase in March followed disruptions linked to the effective closure of the Strait of Hormuz, in the Middle East, with respondents referring to transport delays and even shortages of some raw materials.

Absa points out that it is important to note that this index is inverted, with higher readings indicating slower deliveries.

Given ongoing disruptions to global shipping routes and persistent logistical challenges at South African ports, Absa says the current level likely reflects supply-side constraints rather than stronger demand for inputs.

As such, it says the signal from this index should be interpreted with caution.

Meanwhile, financial services firm Investec Bank says South Africa’s GDP growth is now expected to be lower than previously forecast.

“Before the war in the Middle East, South Africa was on a more favourable growth trajectory, with progress having been made in a number of key areas of the economy. However, the ongoing war has seen supply chain disruptions, while oil prices have climbed considerably, adding upside pressure to inflation,” it notes.