Financial institution Absa’s seasonally adjusted Purchasing Managers’ Index (PMI) rose to 52.1 points in August from 47.6 in July.

Following a tough start to the third quarter, an easing in the intensity of load-shedding meant that conditions in the manufacturing sector improved in August relative to July, the bank said on September 1.

Absa also reported that the business activity index rose back above the neutral 50-point mark for the first time since March. Since then, output had been hampered by the flooding in KwaZulu-Natal and significant electricity supply disruptions.

New sales orders continued to decline in August, the bank stated, but at a slower rate than before.

It said domestic demand was likely continuing to benefit from the reopening effect, while some respondents had also mentioned the return of production at car manufacturer Toyota’s flood-affected factory as supporting demand across the value chain.

Simultaneously, however, the latest global PMI data suggested that external demand was weakening, with the South Africa PMI export sales indicator being stuck in negative terrain for a second month.

On the upside, however, the purchasing price index declined for a second consecutive month and is now at the lowest level since mid-2021. This means that the rate of increase in costs is slowing – not that prices are declining.

Nonetheless, the steep decline in the fuel price at the start of August likely helped to alleviate overall cost pressures, with a further notable decline in the fuel price expected next week, Absa pointed out.

While headline producer price inflation for final manufactured goods remains very high, the PMI suggests that cost pressure at the start of the pipeline has moderated.

Another encouraging improvement noted by Absa was the increase in the expected business conditions index to 57.9 from 49.4 in July.

“This may reflect optimism from purchasing managers that cost pressures will continue to abate over the next six months, while the energy reform measures announced late last month (and thus not fully captured in the July survey) may have also lifted sentiment about the outlook,” Absa said.