The Absa Purchasing Managers’ Index (PMI) increased by 1.9 points to 45.7 points in June, from 43.8 in May, but remained below the 50-point mark.

Following a strong start to the second quarter, which was also reflected in solid growth in official manufacturing production data, May and June have been poor, and the business activity index average was barely higher in the second quarter than in the first, the bank said.

Despite the stable electricity supply throughout the second quarter of the year, insufficient demand seems to have weighed heavily on the sector’s performance, said Absa.

The business activity index declined further to 36.3 points in June, from 38.1 points in May. This is very downbeat following the strong start to the second quarter. The average reading in the second quarter is slightly better than in the first, but insufficient demand remains a big issue.

Additionally, new sales orders remain muted, edging up to 37.9 points in June from 37.8 points in May.

"Many comments from respondents highlighted the depressed demand conditions. Export sales have been stuck below the neutral 50-point mark for four consecutive months, which suggests that the weakness is not just coming from domestic demand," the bank noted.

"Uncertainty around the composition of the new administration remained. This could have extended the wait-and-see approach seen in May, and delayed orders."

Supplier deliveries are worsening, meaning they are taking longer to arrive, and the index measuring suppliers' performance increased to 56.1 in June from 55.4 in May. Port issues likely remain a concern, Absa added.

For example, at the Durban Container Terminal, only seven of the 16 ship-to-shore cranes were operating, and about 55 straddle carriers were available compared with the planned 67.

"The more positive news was that the purchasing price index declined for a third consecutive month, falling to 64.5 points in June from 66.9 in May. This is the lowest reading in six months, indicating that recent signs of easing cost pressure have been sustained," it said.

At the beginning of June, petrol prices fell by R1.24 a litre, while diesel prices fell between R1.09 and R1.19, depending on the grade.

A further fuel price decline is expected in July, which would help alleviate more pressure on costs.

Further good news is that the index for expected business conditions in six months’ time increased to 68.1 points in June from 57.6 in May.

"This is essentially the only measure in the survey that tracks sentiment, and the significant increase bodes well," the bank said.

"Respondents have not been this optimistic about business conditions since early 2022. The prevailing political uncertainty, at the time of the survey in the last week of June, should have diminished over this time period, and there could be hope that domestic and global demand could look better amid expected monetary policy easing."

The employment index improved slightly, gaining 2.8 points to 46.3 in June from 43.5 in May. The stable power supply may have motivated this, but without a sustained increase in activity further gains are unlikely.

The inventories index increased by 7.4 points to 51.9 in June, up from 44.5 in May, following a sharp decline of 6.2 points from 50.7 in April. This may mean that the purchased stock of materials and goods is piling up owing to less activity, Absa said.