South African manufacturers’ confidence has bounced back to hit the highest level in two years.
This is according to the Absa Manufacturing Survey for the second quarter, released on Wednesday, which showed that business confidence rose seven points to 28 during the period under review.
“Over the last few years, manufacturers’ confidence levels have been broadly correlated to the intensity of load-shedding,” said Justin Schmidt, executive for the manufacturing sector at Absa Relationship Banking.
“Although business conditions remain tough, the suspension of load-shedding has been the main factor supporting improved sentiment this quarter.”
The quarterly survey, which covers approximately 700 business people in the manufacturing sector, was conducted by the Bureau for Economic Research at Stellenbosch University from May 9 to 27. The confidence index ranges between zero and 100, with zero reflecting an extreme lack of confidence and 100 showing extreme confidence, where all participants are satisfied with current business conditions.
Manufacturing capacity utilisation improved by 11 points to the best level seen since the last quarter of 2021. Relative to planned production and expected demand, current raw material and finished good stocks returned to positive terrain, increasing 17 and 16 points respectively, reaching the highest levels recorded since 2020 and 2022.
There was also a nine-point increase in seasonally adjusted production, while both raw material shortages and insufficient demand are considered less constraining to current activities.
After five consecutive quarters of negative readings, manufacturers are also more upbeat about fixed investment, which increased by 12 points.
“Given energy constraints, manufacturers have focused their recent efforts on staying operational by investing in renewable energy or generators. Perhaps now we will start seeing investment into capacity building,” Schmidt said.
Manufacturers also indicated a significant improvement (up 21 points) in their intentions to invest in machinery and equipment over the next 12 months.
Looking ahead, more manufacturers are also expecting business conditions to improve over the next 12 months (up 20 points), with an increase in both import and export volumes expected (up 7 and 6 points respectively).
“While improved sentiment is an encouraging development, competition from cheaper imports, rand volatility, muted consumer demand and port-related issues remain concerns. The recent storms in KwaZulu-Natal could also result in downside risk,” said Schmidt.
