The seasonally adjusted Absa Purchasing Managers' Index (PMI) rose by 8.2 points to 48.7 in January, marking a significant recovery from December’s slump, says financial services firm Absa.

Although still below the neutral 50-point mark, the size of the improvement is notable, it says.

Additionally, the business activity index has increased to above the 50-point level, which suggests that production growth could have accelerated in the first month of this year.

The January PMI results suggest that this year has started on a more hopeful note. Signs of improving activity, easing input costs, and stronger domestic demand are providing early momentum, Absa says.

A continued upward trend in orders and production will be key to sustaining this recovery.

Further, unlike in December, all subcomponents of the headline index looked better in January relative to the previous month, the bank adds.

The business activity index started the year on a high note, increasing by 5.3 points and edging back above 50 points at 51.4, up from 46.1 in December, after three weak months. This bodes well for manufacturing production after a subdued fourth quarter of 2025.

However, while December manufacturing production data is still outstanding, it appears the sector, at best, recorded only a marginal quarterly increase, the report points out.

New sales orders rose by ten points to 45.4 in January, although it remained below the neutral 50-point mark. While the index can be volatile, a ten-point increase is significant.

However, exports looked significantly worse relative to December, slumping to the lowest level since the height of the Covid-19 pandemic. This suggests that the recovery in orders was solely driven by domestic demand, Absa highlights.

Export sales values are likely to have been negatively impacted by the stronger rand, it adds.

Further, following a puzzling sharp decline in December, the inventories index returned to more normal levels in January and rebounded by 11.1 points to 47.2, up from 36.1 in December, albeit still below 50 points.

Additionally, after two months of remaining steady at 45, the supplier deliveries index rose by 10.5 points to 55.6, suggesting slower delivery times, which is often interpreted as a sign of improving demand and supply chain activity.

Coupled with the increase in inventories, it may well be that manufacturers restocked, contributing to slower deliveries, the report adds.

The employment index recovered some of its December decline, rising to 43.9 from 39.9, but did not fully claw back the loss. It is below the other subindices included in the headline PMI, which is to be expected as formal sector employment lags activity growth.

Encouragingly, the expected business conditions index did not deteriorate much in January, though it edged lower from 68.8 to 66.4. This remains almost ten points above the average recorded in 2025 and suggests respondents expect a meaningful improvement in six months.

However, respondents’ comments suggest a sustained hesitancy in the market. For example, more quotes are being issued, but few orders are being confirmed, Absa says.

While the strong rand exchange rate is a potential headwind for exporters, it is positive from a cost perspective, as it lowers import costs and contributes to lower fuel prices, it adds.

Further, the purchasing price index edged higher in January to 52, up from 50, but remains near multi-year lows.

The stronger rand exchange rate should help on the import-cost front, with another sizeable diesel price decline later this week also positive, it notes.