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ECONOMY: Manufacturing Confidence Plunges

 



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The BER Manufacturing Survey for the second quarter saw manufacturing business confidence plunge 18 index points to reach 29, from 47 in the first quarter. This is the lowest level of manufacturing business confidence in 2 years.

Although there are some specific trends that warrant concern regarding the sustainability of the slow recovery in the manufacturing sector, the drop in confidence is somewhat sharper than one would expect based on the survey results relating to activity levels and is likely also linked to the recent uptick in global and domestic economic uncertainty,” said BER economist Christelle Grobler.

There was a notable adjustment in the rating of general business conditions, with the bulk of respondents currently rating general business conditions worse than those prevailing a year ago – while the majority previously reported an improvement. Expectations regarding general business conditions in 12 months time were also adjusted downwards.

The anxiety with respect to the global economic environment can clearly be seen in the fact that a majority of manufacturers are expecting a decline in the volume of goods exported over the next year, from a neutral stance in the previous quarter.

Not only does the highly fluid situation in Europe pose a threat to world growth, but the local economic environment has also become more uncertain. There is mounting apprehension regarding the outlook for household consumption expenditure with the current round of BER surveys showing a sharp drop in retail business confidence,” said Grobler.

Increased uncertainty regarding domestic conditions is also evident in the rise in the percentage of manufacturers rating the general political climate as a constraint to its highest level in 11 years.

The percentage of respondents rating the present level of output below capacity increased to 81%, from 74% in the first quarter. This is the highest reading since 2010Q3. The employment indicator again dipped back further into negative territory during the quarter, while the rate of increase in unit labour cost rose notably. Further evidence of the weak employment prospects in the sector can be seen in the decline of the average hours worked per factory worker.

Demand and production indicators did not deteriorate in the second quarter, according to the survey. This is in line with the manufacturing production figures for April, released yesterday by Stats SA, showing a continuation of slow growth in manufacturing production during the month with volumes rising 1.2% year-on-year.

Even with the production indicator remaining stable, other survey results such as continued retrenchments; a drop in unfilled orders in relation to expected demand and producers’ own rating of capacity utilization all point towards a loss of momentum in the recovery of the manufacturing sector,” said Grobler.

The anxiety with respect to the global economic environment can clearly be seen in the fact that a majority of manufacturers are expecting a decline in the volume of goods exported over the next year, from a neutral stance in the previous quarter.

Not only does the highly fluid situation in Europe pose a threat to world growth, but the local economic environment has also become more uncertain. There is mounting apprehension regarding the outlook for household consumption expenditure with the current round of BER surveys showing a sharp drop in retail business confidence,” said Grobler.

Increased uncertainty regarding domestic conditions is also evident in the rise in the percentage of manufacturers rating the general political climate as a constraint to its highest level in 11 years.

The percentage of respondents rating the present level of output below capacity increased to 81%, from 74% in the first quarter. This is the highest reading since 2010Q3. The employment indicator again dipped back further into negative territory during the quarter, while the rate of increase in unit labour cost rose notably. Further evidence of the weak employment prospects in the sector can be seen in the decline of the average hours worked per factory worker.

Demand and production indicators did not deteriorate in the second quarter, according to the survey. This is in line with the manufacturing production figures for April, released yesterday by Stats SA, showing a continuation of slow growth in manufacturing production during the month with volumes rising 1.2% year-on-year.

Even with the production indicator remaining stable, other survey results such as continued retrenchments; a drop in unfilled orders in relation to expected demand and producers’ own rating of capacity utilization all point towards a loss of momentum in the recovery of the manufacturing sector,” said Grobler.


 
 
 
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