Dark clouds gather over South Africa’s economy

South African manufacturers’ sentiment soured to a near six-year low in December, deteriorating further into contraction territory amid sluggish domestic demand and concerns about job growth.

Absa Group Ltd.’s Purchasing Managers’ Index, compiled by the Bureau for Economic Research, fell to 40.5 from 42 in November, the Johannesburg-based lender said in an emailed statement on Thursday.

That was well below the 45-point median estimate by three economists in a Bloomberg survey.

The inventories sub-index declined by 9.9 points, falling to 36.1, touching its lowest level since May 2020.

“This is primarily due to the constant weak demand, as there has been no evidence of prior overbuying,” the lender said. “It appears that manufacturers are destocking in response to uncertain economic conditions, aiming to manage costs.”

The employment gauge also saw a steep decline of 6.3 points and has been stuck in contractionary territory since April 2024.

“Weak demand and activity in the sector have not presented a strong case for employment growth,” Absa said. “Only strong economic growth and recovery will lead to better employment outcomes.”

Africa’s largest economy has grown at below 1% on average a year for more than a decade, constricting job growth and is seen expanding 1.6% in 2026 — too low to make a dent. South Africa’s unemployment rate of 31.9% is among the highest in the world.

“The weak performance in business activity and volatile sales orders continues to limit the scope for hiring, while shortages of specialised skills in certain niche industries also weigh on employment outcomes,” Absa said.

The new sales orders index decreased slightly to 35.4, largely as a result of a weaker domestic economy, given there were improvements in export orders; though the lift was not enough to make a significant contribution to a turnaround in demand, Absa said.

Despite the decline in the headline reading, the business activity index increased by 9.4 to 46.1, reflecting that weak demand remains the main force hindering sector performance, the lender said.