Business confidence in South Africa’s manufacturing sector rose significantly in the fourth quarter, according to the latest Absa Manufacturing Survey, signalling cautious optimism among manufacturers even as the sector continues to face substantial pressures.

The survey, conducted between November 10 and 24 in partnership with the Bureau for Economic Research (BER) at Stellenbosch University, shows the business confidence index increasing by 16 points from the third quarter to 39 points.

While still below levels recorded in the fourth quarter of 2024, respondents cited improved domestic sales, stronger domestic and export orders, and an increase in production capacity as positive developments. Selling prices remained stable, while the total cost of production per unit decreased, with the relevant index falling from 61 points to 47 points quarter-on-quarter.

“Following a challenging year for manufacturers, underpinned by significantly constrained demand, it is encouraging to see some of the key indicators turn and allow manufacturers to adopt a more positive forward-looking view.

“Another interest rate cut, a well-received medium term budget speech, South Africa’s removal from the Financial Action Task Force grey list and the S&P credit rating upgrade are some of the key developments that impacted sentiment during the quarter,” Absa Business Banking sector specialist for manufacturing Sachin Chanderdhev said.

The survey reflects feedback from about 700 manufacturing businesses across various subsectors, with the confidence index ranging from 0, indicating no confidence, to 100, representing extreme confidence.

Respondents in the chemicals, wood and metals industries contributed most to the overall positive shift, with respective confidence scores of 62, 56 and 33.

Conversely, food and beverages and transport reported declines in confidence, falling by 3 and 18 points, respectively.

Manufacturers of consumer, intermediate and capital goods all demonstrated improvements in their business confidence scores. However, the indicator for realised export sales declined across most subsectors, highlighting ongoing volatility in global trading conditions despite slight improvements in orders.

Chanderdhev noted that, if prevailing economic conditions were maintained, consumer demand was expected to improve, which would support further growth in business confidence. He also highlighted rising electricity costs as an ongoing challenge, prompting manufacturers to consider adjustments to their energy supply mix, including investments in renewable-energy sources.

“While manufacturers continue to build resilience into their operations, it is significant to observe the positive sentiment towards fixed investment into machinery and equipment over the next 12 months, as this should result in new capacity and/or increased efficiencies within the sector,” Chanderdhev said.

The improved confidence reported in the Absa quarterly survey contrasts with results from the latest Absa Purchasing Managers’ Index, which recorded a sharp decline of 7.2 points to 42 in November, signalling a renewed contraction in manufacturing activity.

Both business activity and new sales orders deteriorated meaningfully, suggesting that while confidence has improved, a sustained recovery in production and demand will be necessary to validate this optimism.