Manufacturing declined into contractionary territory from 50,8 to 47,3 index points on Wednesday according to the Absa Purchasing Managers’ Index (PMI) in June 2026. Experts said that Middle East tensions have impacted the PMI.
Absa said that the survey took place after the US and Iran signed a memorandum of understanding to end hostilities in the Middle East and reopen the Strait of Hormuz, which led to a significant decline in the Brent crude oil price.
Absa added that the PMI’s purchasing price index declined sharply by 13,5 points to 71,3 in June. “This suggests that April and May may have marked the peak of price pressures, particularly given the fuel price reductions that came into effect on Wednesday.”
Absa said that while front-loaded orders contributed to improved demand in March and April, respondents suggested this dropped off in May.
“To some extent, this pattern may have reversed in June, with some respondents indicating that clients were now postponing purchases in anticipation of lower prices. This contributed to the new sales orders index declining further in June, even as business activity improved slightly.”
Absa added that although June was weaker, the average business activity index for Q2 remained broadly unchanged from Q1, when official manufacturing production contracted, suggesting manufacturing output likely remained under pressure for a second consecutive quarter. “Manufacturers’ own inventory levels also declined, suggesting purchasing managers were perhaps also waiting for price declines.”
Absa concluded that the easing of tensions in the Middle East also contributed to an improvement in the expected business conditions index, which tracks expectations six months ahead.
“The index rose from 52,9 to 56,6 and is now more than 10 points above the March level – although still 10 points below where it started the year. The upcoming (at the time of the survey) June 30 protests were flagged by some respondents as a key concern and likely weighed on sentiment.”
Waldo Krugell, a North West University Business School economist, said the index reflects the ebb and flow of global politics and the oil price. “Subindices show that purchasing prices declined as the oil price and fuel price came down in June. New sales orders and the inventory levels show that purchasing managers were waiting for lower prices.”
Krugell added that there was slight improvement in business activity and manufacturing remains under pressure in the second quarter.
“The encouraging part is, with all this anticipation of lower oil and fuel prices and the expectation of an uptick in business later on, the expected business conditions sub-index again improved, which I think is good news for economic activity in the second half of the year. All in all I think this is a good base from which to start a recovery.”
Lara Hodes, Investec economist, said that the seasonally adjusted headline PMI fell into contractionary territory in June. “Business activity lifted modestly in June (by 2.1 points), but remained below 50, in contractionary terrain, suggesting that manufacturing output was likely under pressure again in the second quarter,” according to the BER.
Hodes added that new sales orders, however, slid further in June, to a subdued 40,6, from 44,6 previously, with some survey respondents suggesting “that clients were now postponing purchases in anticipation of lower prices,” following the signing of the Memorandum of Understanding (MOU).
“The supplier deliveries sub-index came down slightly from levels recorded in April and May but remained high at 60,0. The index is inverted (a higher index reading reflects slower deliveries) and given the still fragile global environment, the still elevated reading likely suggests that supply chains have not yet normalized,” according to the BER,” said Hodes.
Hodes said that the employment index reading slumped to 41,4. “The ongoing war has led to high levels of uncertainty globally, weighing on confidence and accordingly businesses are likely to have deferred the hiring of new employees in the near term.”
Prof Simphiwe Madikizela, Professor of Economics at UNISA said that it’s a concern that the PMI has declined although the agreement has just been signed its impact has not been seen as yet into the economy and it’s also volatile however the decrease in crude oil prices and strengthening rand are good signs hence the reduction in the prices of both petrol and diesel effected on Wednesday
Visit:www.businessreport.co.za
