MANUFACTURING: Manufacturing Sector Recovery Strengthens
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The Stellenbosch Bureau For Economic Research’s (BER) latest Manufacturing Survey indicated that manufacturing business confidence increased by 10 index points to 51 during 2011Q1.
The results showed a continued improvement in demand conditions. The indicators for domestic sales and for order volumes received increased further during the quarter, signalling continued domestic demand strength. The readings for domestic sales and order volumes reached their highest levels since 2007Q4. Judging from the previous expectations, manufacturers were surprised on the upside by the demand strength in 2011Q1, the BER reports.
On the exports side, sales declined but export order sales improved notably. The improvement in order volumes may signal a more positive outlook for exporters.
In line with the pick-up in demand, production improved during the quarter. The net majority reporting higher production volumes increased. Furthermore, there was a decline in the stocks of raw materials and finished goods. Nkanyiso Hlongwa, an economist at the BER at Stellenbosch University said, “The decline in stocks was possibly driven by better than expect demand reported by the manufacturers. It also suggests that manufacturers may have to scale up production further.”
However, the survey did reveal cost pressures building up in the manufacturing sector. The purchasing price of raw materials accelerated notably, leading to a rise in average total cost inflation. “The increase in raw material prices may be reflective of the recent surge in global commodity prices,” said Hlongwa.
Furthermore, domestic and export selling prices increased during the survey. The net majority reporting an acceleration in domestic selling price inflation rose significantly. Manufacturers also reported a rise in export selling price inflation. “The results indicate that manufacturers are passing on the higher costs to the domestic and export markets. The rise in domestic selling price inflation may lead to upside cost pressures to producer price inflation (PPI) as calculated by StatsSA” said Hlongwa
General business conditions improved during the survey and are estimated to get better over the coming 12 months. Consequently, manufacturers expect to increase investment over the coming 12 months.
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