By Thanda Sithole
Key highlights
Manufacturing output weakened further in June, reflecting subdued demand conditions and supply-side challenges, with elevated production costs continuing to weigh on operating conditions. Non-seasonally adjusted manufacturing output declined by 1.7% year-on-year (y/y) in June, following a 4.4% contraction in May. The outturn was, however, better than the Bloomberg consensus expectation of a 3.7% contraction. Three of the ten manufacturing divisions recorded decreases in production in June (Figure 1).
Seasonally adjusted manufacturing output, which is important for assessing quarterly GDP growth, increased by 0.9% month-on-month (m/m) in June, following 1.0% expansion in May. However, this recent sequential improvement was insufficient to offset earlier weakness, with manufacturing output declining by 1.5% quarter-on-quarter (q/q) in 2Q26. This suggests that manufacturing was once again a drag on overall GDP growth during the reference quarter.
Key data insights
This data points to continued weakness in domestic manufacturing activity, although the pace of contraction moderated in June. The modest monthly performance towards the end of the second quarter provides some indication of improved momentum, but this has yet to translate into meaningful recovery in overall production.
The 1.7% year-to-date (January to June) decline in manufacturing output is particularly concerning when compared with a 1.3% contraction over the full year in 2025 and a 0.4% decline in 2024. This underscores the persistence of both cyclical and structural constraints facing the sector.
On the cyclical side, subdued domestic demand and weak business confidence continue to constrain production. At the same time, structural constraints, including logistics inefficiencies, electricity and energy costs, and infrastructure bottlenecks, continue to limit the manufacturing sector's ability to expand sustainably. As such, despite some monthly improvements towards the end of 2Q26, manufacturing has yet to establish a sustained recovery.
Implications
Weak manufacturing activity remains a constraint on South Africa's broader economic growth prospects, particularly given the sector's linkages to mining, transport, trade and business investment and employment. However, the recent improvement in seasonally-adjusted output provides some tentative support for the view that the sector could stabilise if domestic demand strengthens and supply-side constraints continue to ease. A sustained recovery would require both strong demand conditions and improvements in the cost and reliability of production.
Looking ahead
The near-term outlook will hinge on whether the sequential improvement in manufacturing output seen in May and June can be sustained into 3Q26. While the headline manufacturing PMI deteriorated at the start of 3Q26, the business activity and new sales orders sub-indices showed some improvement, suggesting that underlying activity may be gaining some traction. A sustained recovery would provide support to the broader growth outlook, while renewed weakness would reinforce concerns about the manufacturing sector's structural constraints and its ability to contribute meaningfully to economic growth.
