South Africa’s manufacturing sector slumped in April

South Africa's manufacturing sector is facing significant challenges as confidence in the industry has reached its lowest level since November 2023. The ABSA Purchasing Managers Index (PMI) reported a 4-point decline to 44.7 points in April, marking the sixth consecutive contraction in the index. Andiswa Nondudule, Economist at ABSA CIB, provided insights into the factors contributing to the decline and the outlook for the sector. Nondudule highlighted the impact of weak demand, global tariff tensions, policy uncertainty, excessive rains, and public holidays on manufacturing activity in April. Uncertainty surrounding tariffs has disrupted demand and led to a decrease in new sales orders, affecting production levels. Stockpiling of inventory by manufacturing companies was observed as a response to the uncertain trade environment. The implementation of a 10% baseline tariff across all sectors in South Africa has raised concerns about its impact on industries such as autos, agriculture, and manufacturing. If exports were to decline by 20%, the country could experience a 0.4% reduction in GDP. Nondudule also mentioned that the scrapping of the reciprocal announcement regarding tariffs could have a positive effect on the sector, although adjustments in costs due to policy changes may still impact manufacturers. Moreover, Nondudule discussed the influence of currency exchange rates on pricing in the manufacturing sector. The weakening of the rand in April led to increased input costs, contributing to higher prices. While the rand has since strengthened, ongoing fluctuations in exchange rates could continue to affect production costs. Regarding employment outlook, Nondudule noted a reduction in jobs within the sector as firms scale back on employment to align with declining productivity levels. Manufacturers will likely focus on improving productivity before considering new employment opportunities. The challenge lies in achieving sustainable growth in production levels to support job creation in the manufacturing sector. Overall, the manufacturing industry in South Africa is navigating a complex landscape characterized by various internal and external factors. As global trade dynamics evolve, local businesses will need to adapt to changing conditions to ensure their competitiveness and resilience. Collaborative efforts between industry stakeholders and policymakers may be essential in addressing the current challenges and fostering sustainable growth in the sector.