After reaching its highest level in over two years during the fourth quarter of 2024, the latest Absa Manufacturing Survey saw a slight dip in confidence in the first quarter.
While the start of 2025 brought renewed optimism, confidence fell by 2 points to 34 as an uncertain local and global environment impacted sentiment.
“Internationally, geo-political tensions, tariff increases in the US and possible disruptions to the African Growth and Opportunity Act (AGOA) agreement, have started to weigh on manufacturers,” says Justin Schmidt, executive for manufacturing sector at Absa Business Banking.
“Locally, proposed electricity tariff increases by the National Energy Regulator of South Africa (Nersa), the sudden re-introduction of loadshedding and the postponement of the Budget Speech, which initially proposed a significant increase in VAT, also contributed to the uncertainty.”
As a result, the indicators that measure the political climate and business conditions deteriorated by 17 points each.
The quarterly survey, conducted by the Bureau for Economic Research (BER) at Stellenbosch University between 5 February and 24 February 2025, involved approximately 700 businesspeople from the manufacturing sector. The confidence index ranges from 0 to 100, with 0 indicating an extreme lack of confidence and 100 representing extreme confidence.
Seasonally, the first quarter is typically a quieter period for the manufacturing sector, and this year proved no exception. Dampened demand in the domestic market, primarily due to limited consumer purchasing power, continued to weigh heavily on the sector. Domestic sales fell by 18 points, domestic orders received dropped by 9 points and domestic selling prices per production unit also shrunk by 8 points.
The metals & machinery and chemicals subsectors were the biggest contributors to the overall drop in confidence. In contrast, the food & beverage and transport subsectors showed notable improvements in sentiment, rising by 6 points and 14 points, respectively. Confidence in the metal and machinery sector plummeted sharply to 29 from 41 points in the previous quarter, possibly driven by local challenges and the ongoing global oversupply of steel.
However, there are positives: export demand rose by 15 points, moving into positive territory, and export orders received increased by 12 points. Although export selling prices per production unit declined, the results were better than anticipated.
“Compared to the averages for 2024, most indicators for Q1 2025 show an improvement, suggesting that manufacturing conditions could be better than last year,” adds Schmidt. “Despite constraints such as raw material shortages, and lower local demand, the outlook is better than the same period last year.”
Manufacturers also seem to be signalling a more positive outlook for investment. According to the index, the likelihood of investing in fixed assets improved by 12 points. The indicators that measure investment constraints such as insufficient demand, cost of credit, and tax structures have also shown signs of improvement. Additionally, manufacturers are expecting export volumes to increase during the year, demonstrated by a 12-point surge.
While indicators for current activities remained stable, manufacturers noted a decrease in the shortage of skilled and semi-skilled workers, which could provide some relief moving forward.