The seasonally adjusted Absa Purchasing Managers’ Index (PMI) rose by a further 1.6 points to 52.5 in February, following a 4.2-point rise in January – lifting the PMI to its highest level since June 2016.

“This corresponds with the improvements observed in a number of South Africa’s key trading partner countries of late, most notably China and Europe,” BNP Paribas Securities South Africa economist Jeffrey Schultz said on Wednesday.

The second consecutive improvement in the PMI and the broad-based nature of the uptick across the key subcomponents is a positive sign that the manufacturing sector has started the year on a solid footing.

The Steel and Engineering Industries Federation of Southern Africa (Seifsa) commented that the data showed that the manufacturing sector was "on the mend" and that this contributed favourably to the federation's more positive outlook for the metals and engineering sector this year. Seifsa senior economist Tafadzwa Chibanguza said the sector had "found its turning point".

Four of the five major subcomponents of the Absa PMI were above the neutral 50-point mark. After the increases recorded in January and February, the headline figure was closer to that of South Africa’s main trading partners, after underperforming throughout the second half of 2016.

Most encouraging is that the new sales orders index stayed above the neutral 50-point mark for a fourth straight month. In fact, at 55.7 points, the index is now at the best level since April 2016.

“The gains in manufacturing PMI gels well with our view for an improvement in domestic growth prospects this year. Positive momentum in the manufacturing sector remains fragile, however, given still suppressed levels of domestic demand and weak business confidence,” said Schultz.

Nevertheless, he believed a rebound in global industrial metals prices and an improvement in global economic demand and activity, stimulating net exports, would provide welcome support to manufacturers in the coming months.

Respondents in the survey further noted that an uptick in export orders and the recovery in the local agricultural sector is also likely lifting demand for manufactured products.

The sustained recovery in demand helped to lift the business activity index to 53.2 index points in February, up from 52.7 in January.

On the back of the sustained strengthening of the rand, the purchasing price index moved lower in February, declining to 68 from 72.4 in January.

After surging to the highest level in almost seven years in January, the index measuring expected business conditions in six months’ time remained high in February. The index did decline somewhat to 67.8 index points from 70.3 in January, but this was still the most optimistic purchasing managers have been about the near-term future since the start of 2015.

The PMI leading indicator also improved to above one in February, suggesting that production may pick up with orders outstripping inventories.

A key risk to this relatively upbeat outlook is the possibility that the significant tax hikes announced in last week’s national budget may depress consumer spending going forward.