Rising Confidence Amongst Manufacturers

25 June 2021 – The Q2 Absa Manufacturing Survey has seen a significant improvement in overall sector confidence, with business confidence rising by 21 points to 46 points during the quarter, the highest level since 2012.

“The increase was largely driven by strong selling price hikes and output increases,” said Justin Schmidt, head of manufacturing sector at Absa Retail and Business Bank. “Better-than-expected demand resulted in higher capacity utilisation and early indications suggest that this may continue – manufacturers are positive about the export outlook over the next 12 months.” 

The quarterly survey, which covers approximately 700 businesspeople in the manufacturing sector, was conducted by the Bureau for Economic Research (BER) at Stellenbosch University between May 12 and May 31. The index ranges between zero and 100, with zero reflecting an extreme lack of confidence and 100 extreme confidence.

The survey findings echo recent data releases, which showed positive signs of growth and continued recovery. South Africa’s real GDP grew by a seasonally adjusted 4.6% quarter-on-quarter in Q1 2021, with manufacturing continuing its recovery with a 1.6% increase quarter-on-quarter. Looking ahead to the second quarter, the Absa PMI rose to 57.8 points in May 2021 from the April 2021 figure of 56.2 points.

But while there is evidence of green shoots, the sector is not out of the woods yet. For the third quarter in a row, the majority of manufacturers indicated low levels of raw material stocks relative to their planned production. “This is having a knock-on effect on input prices for manufacturers,” said Schmidt.

The majority of manufacturers have also noted that finished good stocks have been low relative to expected demand, with this sub-index reaching its lowest level on record. “This is not only a further indication of the shortage of raw materials available but, positively, also an indication that demand continues to exceed expectations.”

Manufacturers’ expectations regarding the next 12 months are more optimistic, with the majority expecting trade and business conditions to improve. “Forward-looking expectations need to come to fruition before we will see sustained investment into new capacity in the sector. However, load shedding as well as the impact of the third wave of Covid-19 pose a risk to the recovery,” said Schmidt. Source (Freight News)