Financial services firm Absa’s Purchasing Managers’ Index (PMI) declined from 50.8 in May to 47.3 index points in June.

The sharp decline in the PMI’s purchasing price index by 13.5 points to 71.3 in June suggests that April and May may have marked the peak of price pressures, particularly given the fuel price reductions that came into effect on July 1, the bank says.

The survey for the monthly PMI 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.

With the 3.5-point month-on-month decline, the PMI was below the neutral 50-point mark, after having been in expansionary territory during April and May.

The decline reflects softer demand conditions across the manufacturing sector, although easing geopolitical tensions helped ease input cost pressures and improve manufacturers' expectations for the months ahead.

The easing of tension in the Middle East also contributed to an improvement in the expected business conditions index, which tracks expectations six months ahead. This index rose to 56.6 from 52.9 and is now more than ten points above the March level, although still ten points below where it started the year.

Demand declined further in June, with the new sales orders index tumbling to just 40.6 from a high of 52.9 in April when sales were supported by front-loaded demand in anticipation of price increases.

Some respondents believe client demand may have dropped off, as buyers now expect prices to come down in the near term.

This also contributed to the new sales orders index declining further in June, even as business activity improved slightly, Absa says.

Although June was weaker, the average business activity index for the second quarter of the year remained broadly unchanged from the first quarter, when official manufacturing production contracted, suggesting manufacturing output likely remained under pressure for a second consecutive quarter.

Manufacturers’ own inventory levels also declined, which suggests purchasing managers were perhaps also waiting for price declines, Absa says.

The inventories index fell back below the neutral 50-point mark after two months above this level. The previous high readings were likely owing to purchasing managers stocking up on raw materials and intermediate goods used in the production process in anticipation of price increases.

The de-escalation of tension in the Middle East and the subsequent sharp decline in the Brent crude oil price likely had the opposite effect, with many purchasing managers now likely waiting for prices to come down before restocking, the bank notes.

Meanwhile, the supplier deliveries index remained relatively unchanged for a third month. There has been a clear step change following the start of the war in Iran, with the index remaining much higher than in 2025 and at the start of this year.

The index measures the speed of supplier deliveries and is inverted, meaning that the current high level suggests that deliveries are slower than usual. This suggests that supply chains have not yet normalised despite the easing in geopolitical tensions, Absa says.

The sharp decline in the purchasing price index does not mean that costs declined, but rather that the rate of increase slowed down significantly relative to the previous month.

The sharp decline in the Brent crude oil price, relatively strong rand and slight decline in the diesel price at the start of June all contributed to this.

Additionally, the steeper diesel price decline effective today will provide additional relief, although the level remains high and continues to be cited as a constraint by respondents.

Further, following a brief period of sustained improvement to 43.8 in April and 48.4 in May, the employment index declined sharply to 41.4 in June and remains below the neutral 50-point mark.