For the second quarter of the year the Absa Manufacturing Survey has seen a significant improvement in overall confidence, with business confidence having risen by 21 points to 46 during the quarter, the highest level since 2012.
The increase was largely driven by strong selling price hikes and output increases, says Absa Retail and Business Bank manufacturing sector head Justin Schmidt, who adds that the better-than-expected demand had resulted in higher capacity use.
Early indications suggest that this may continue, considering that manufacturers are positive about the export outlook over the next 12 months, he notes.
The survey findings echo recent data releases, which showed positive signs of growth and continued recovery.
South Africa’s real gross domestic product grew by a seasonally adjusted 4.6% quarter-on-quarter in the first quarter of the year, with manufacturing continuing its recovery with a 1.6% increase quarter-on-quarter.
Looking ahead to the second quarter, the Absa Purchasing Managers Index rose to 57.8 points in May from 56.2 points in April.
But while there is evidence of green shoots, the survey warned that the sector is “not out of the woods yet” as, 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,” notes Schmidt.
The majority of manufacturers have also noted that finished goods stock has been low relative to expected demand, with this subindex having reached its lowest level on record.
Schmidt explains that 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 of manufacturers expecting trade and business conditions to improve, the survey found.
“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,” says Schmidt.
The quarterly survey, which covers about 700 businesspeople in the manufacturing sector, was conducted by the Bureau for Economic Research 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.