South Africa factory sentiment worsens as demand fades

South Africa’s manufacturer sentiment worsened slightly in May as demand slumped and supply disruptions due to the Iran war continued.

Absa Group’s Purchasing Managers’ Index, compiled by the Bureau for Economic Research, dropped to 50.8 from 52.6 in April, the Johannesburg-based lender said in an emailed statement on Monday. Even so, it remained above 50 for a second straight month, the threshold separating an expansion from contraction.

“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 said. “In April, manufacturers benefitted from demand being brought forward in anticipation of further cost increases, but this effect faded in May,” and some respondents warned that recent weakness in demand could persist in the coming months, it said.

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Data released last week showed monthly producer inflation accelerated to a record in April as higher fertiliser and energy costs tied to the Iran war pushed up prices. That reflected a broader global shock, with the conflict disrupting energy flows through the Strait of Hormuz, a critical chokepoint for liquefied natural gas, oil and fertiliser.

The deterioration in sentiment was largely due to a decline in a business activity sub-index, which fell to a six-month low of 43.5 in May from 52.8 in April, and a drop in a new sales gauge — to 44.6 from 52.9.

Still, expected business conditions in six months’ time increased to 52.9 from from 47.4, moving back above the neutral 50-point mark. That suggested “purchasing managers expect conditions to be more favorable by year-end than they are currently,” Absa said.

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