The seasonally adjusted Absa Purchasing Managers’ Index (PMI) ended 2018 on a positive note, reaching the best level of the year – 50.7 – in December.

This was an improvement from the 49.5 recorded in November.

The index, which was released on Wednesday, showed signals of growth in the sector.

However, financial services company Investec said that, in December 2018, the global PMI dipped to its lowest level in over two years.

In a separate statement on Wednesday, the company commented that survey details showed that the new export orders subindex had contracted for the fourth consecutive month in December and that “business confidence dropped to its lowest level in the series’ history”.

This suggests a further softening in the global manufacturing sector growth heading into 2019, and that increased uncertainty regarding the economic outlook is partially linked to international trade tension, Investec said.

Meanwhile, the new sales orders index, one of five subcomponents of the PMI, rose for a second month to reach 54.3 points in December. Respondents noted a continuing rise in export orders, which likely supports the overall improvement in demand.

However, the report warned that a deceleration in global growth may start to weigh on export growth going forward.

Even so, in December, the improvement in demand helped to lift the business activity index above the 50-point mark for the first time since February 2018. Both new sales orders and activity came in at the highest level seen throughout the year, the index said.

The business activity index rose to 53.8 in December – its fourth consecutive improvement – after lingering below the 50-point neutral mark throughout most of 2018.

However, despite an uptick in activity, the employment index slumped to its lowest level since 2014 – 40.5 points.

A further decline in the purchasing price index also lifted spirits, as this reflected a decline in cost pressures for manufacturers. However, the index warned that a possible return of electricity load-shedding from mid-January 2019 could depress the tentative signs of recovery in the sector.

While the December survey results are encouraging, the index pointed out that a sustained recovery in demand is required before a meaningful recovery in manufacturing output, investment and employment can take place.

Meanwhile, the purchasing price index declined for a third consecutive month to reach the lowest level since May 2018. This was despite a weaker rand exchange rate during December, which pushed up the cost of imports in rand terms, the index noted.

However, the index argues that this was likely outweighed by the sharp fuel price decline at the start of December. A lower Brent crude price, on average, during December led to a further fuel price drop at the start of January. This may drive a further decline in the purchasing price index in January, the index warned.

The inventories index edged lower after a solid improvement in November by dipping back below the neutral 50-point mark to 48.5 points in December.

Despite the decline, the index remains about seven points above October 2018’s level.

The purchasing commitments index lost the previous two months’ gains and fell back to September’s level of 42.8 points.

On a more positive note, for the first time since July 2018, respondents expect business conditions to improve in six months’ time.

The index tracking expectations rose for a second month to reach 51.4 points in December and is now almost ten points above a low of 41.7 points reached in October 2018. This positive sentiment is supported by the PMI’s leading indicator, which rose further above one with sales orders outstripping inventories.

Investec said that, looking ahead, “a meaningful and sustained rebound in manufacturing sector activity is likely to be curtailed by slowing global trade momentum”.

Investec referred to leading indicators, such as the World Trade Organisation’s World Trade Outlook Indicator, noting that it signals that “trade growth in the coming months will be below-trend”.