By Thanda Sithole
Key highlights
Following a disappointing performance in manufacturing production in 2Q26, activity rebounded at the start of 3Q26. Non-seasonally adjusted manufacturing output increased by 1.1% year-on-year (y/y) in July, after three consecutive months of annual contraction. The outturn was significantly better than the Bloomberg consensus projection of a 2.0% contraction. Six of the ten manufacturing divisions recorded increases in production, while four recorded decreases.
Seasonally-adjusted manufacturing output, which is critical for the calculation of quarterly GDP growth, expanded by 2.2% month-on-month (m/m) in July, the strongest monthly expansion since May 2025. The increase came despite the manufacturing PMI business activity index remaining below the 50-point neutral level, which separates expansion from contraction, at 48.8 points in July. The divergence between the two indicators highlights some uncertainty around the strength and sustainability of the recovery.
Nevertheless, the increase in seasonally-adjusted manufacturing output marks the third consecutive month of expansion, suggesting that momentum has improved heading into 3Q26, even as the sector continues to face significant cyclical and structural constraints.
Key data insights
The July data is encouraging and points to an initial recovery in manufacturing activity, although output remains uneven and the broader sector backdrop remains challenging. The improvement in monthly momentum, if sustained through the remainder of the quarter, could provide some support to 3Q26 GDP growth following the manufacturing sector's drag on growth in 2Q26.
Year-to-date (January to July), manufacturing output is down by 1.3%, broadly in line with the full-year decline recorded in 2025. The continued contraction over the first seven months of the year underscores the persistence of both cyclical and structural constraints facing the sector, despite the improvement in recent monthly output.
Looking ahead
The near-term outlook for manufacturing has improved following the stronger July production data, but a sustained recovery is not yet assured. Weak domestic demand, elevated production costs, infrastructure constraints and subdued business activity continue to weigh on the sector. The PMI remaining below 50 well into the current quarter also suggests that the July improvement should be interpreted cautiously. Nevertheless, if the recent improvement in seasonally-adjusted output is sustained, manufacturing could shift from being a drag on growth in 2Q26 to providing a modest positive contribution to GDP growth in 3Q26.
