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Send  Share  RSS  Twitter  12 Sep 2011

ECONOMY: Business Confidence Declines


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The Stellenbosch-based Bureau for Economic Research’s (BER) latest Manufacturing Survey indicated that manufacturing business confidence fell sharply from 51 to 36 index points.


After improving for two consecutive quarters, demand conditions deteriorated notably during 2011Q3. The rate of growth in domestic sales and order volumes declined sharply, and came in well below what manufacturers had expected.

On the other hand, manufacturing export conditions remain challenging. Although export sales improved, supported by the rebound in the transport sector (after the slowdown in 2011Q2), the order volumes indicator declined marginally. This is the eighth consecutive year that these indicators have been in negative territory.

In line with demand conditions, growth in production volumes slowed significantly during 2011Q3. The current level of production was reportedly in line with that of a year ago. Nkanyiso Hlongwa, a BER economist at Stellenbosch University said, “In addition to the slowing demand, the decline in production growth was exacerbated by the negative impacts of the July and August strikes as well as the lost production from the steel furnace failure”.

The poor production figures had adverse consequences for employment. Manufacturers reported an acceleration in the rate of job shedding as activity came under renewed pressure from both the demand and supply side. Furthermore, employees worked fewer hours than in the previous quarter.

The renewed rise in retrenchments in the manufacturing sector is disappointing given the already slow recover in total employment after the recession. The fact that workers worked fewer hours also suggests that employment levels may remain under pressure in the short term” said Hlongwa.

The deterioration in business conditions also contributed to manufacturers reducing the fixed investment according to the survey. “The amount of global and domestic economic uncertainty and the rising concerns about the political climate as a constraint may be directly causing manufacturers to delay their fixed investment plans,” said Hlongwa.

Overall the results suggest a prolonged slowdown in the growth rate of manufacturing activity, with strikes, slowing demand growth and uncertainty contributing to the weakening sentiment. “Given the latest results, we may see a further decline in the official manufacturing activity figures for 2011Q3 and this does not bode well for domestic economic growth,” said Hlongwa.


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