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For the first time since July 2018, respondents in the Absa Purchasing Managers' Index expect business conditions to improve in six months' time, a tentative signal of recovery in SA manufacturing.
The PMI, compiled by the Bureau for Economic Research at Stellenbosch University, rose from 49.5 in November 2018 to 50.7 points in December 2018, which is just above the neutral mark and signals growth in the sector.
This was its best level of 2018.
The sub-index tracking expectations for the industry rose for a second month to reach 51.4 in December and is now almost 10 points above the low of 41.7 reached in October.
According to the report, the positive sentiment is supported by the indication that sales orders are outstripping inventories.
"A further decline in the purchasing price index also likely lifted spirits, as it reflects a decline in cost pressures for manufacturers," states the report.
"However, a possible return of electricity load shedding from mid-January could depress the tentative signs of a recovery in the sector."
The report emphasises that a sustained recovery in demand is required before a meaningful recovery in the manufacturing output, investment and employment can take place.
According to the report, headline PMI was well supported by three of the five subcomponents, namely those tracking activity, demand and supplier performance.
However, employment moved lower, while the inventories index edged back below the neutral 50-point mark.
Investec economist Kamilla Kaplan pointed out that, despite the improvement in the PMI gauge, the level in the vicinity of 50, remains consistent with ultimately modest growth in the sector.
"Looking ahead, a meaningful and sustained rebound in manufacturing sector activity is likely to be curtailed by slowing global trade momentum as reflected in leading indicators such as the World Trade Organisation's World Trade Outlook Indicator and the global PMI," commented Kaplan.
"On the domestic front, should load-shedding be reinstated, depending on its extent and severity, production would be negatively affected."
