Consumer sentiment, factory output wane on third wave fears
PROSPECTS of a third wave of Covid19 infections have jinxed the country’s production landscape, with many companies pointing to a drawn-out recovery period in factory activity.
A year after the country first went into hard lockdown, South Africa’s manufacturers are still reporting constrained supply chains and raw material shortages due to global restrictions.
Recent data from Statistics South Africa (Statssa) showed that industrial production rose to -2.0 percent yearon-year in January from -4.0 percent in the fourth quarter and -6.0 percent in the third.
The data indicated the deterioration in industrial production was led by the mining sector, which dropped from 15 percent of GDP in 1993, to 7 percent.
Investec chief economist Annabel Bishop said last year’s harsh lockdowns had a decimating effect on manufacturing. She said that the country lost 1.4 million jobs when lockdown restrictions of level 4 and 5 were applied.
Bishop said there general concession a was, however, that the strict lockdown would not be repeated.
“Indeed, SA risks not fully vaccinating its entire adult population next year, either as the country continues to wait for bulk vaccines to arrive, although if these arrive on time and are rolled out within schedule, we would strengthen our view,” she said.
“Until then, there will likely be further waves of Covid-19, and so lockdowns on economic activity, and consequently we have weak economic growth rates.”
This week, the Absa Manufacturing Survey showed that overall manufacturing confidence fell from 31 to 25 index
Absa said the pandemic’s sustained influence on business and consumer sentiment remained concerning amid the uncertainty about its trajectory.
Absa Retail and Business Bank’s head of manufacturing sector Justin Schmidt said output continued to lag demand in the first quarter, in spite of the easing of restrictions.
Schmidt said stock levels of finished goods relative to expected demand remained the lowest on record.
“External shocks such as the reintroduction of lockdown restrictions to mitigate the impact of a third wave of Covid-19 cases and the resurgence of load shedding, which will likely remain a factor throughout 2021, pose a risk to the recovery,” he said.
Confidence has also waned in the retail sector, with sales shrinking more than expected in January, weighed down by tighter lockdown restrictions.
The Bureau for Economic Research (BER) retailer confidence gauge, released on Wednesday, declined by 13 index points to 37 in the first quarter of 2021.
Wholesaler confidence, however, remained largely unchanged, despite a tough business environment and points in the first quarter of low sales volumes. BER said that South Africa’s retailers were pessimistic about business conditions.
BER economist Tshepo Moloi said the retail trade sector, once a star performer during the fourth quarter of 2020, now has to eat humble pie at the start of 2021.
Moloi said renewed lockdown restrictions would certainly harm the sector in the second quarter.
He said it was discouraging that the overall retail sector, except for the non-durable retailers, was pessimistic about business conditions and sales volumes.
“Furthermore, given the hikes in fuel and electricity prices, rising food inflation, below-inflation adjustments to social grants and the expiration of the relief grant at the end of April, there is a real risk that the household finances of low-income consumers could come under significant pressure,” he said.
Moloi said much of the performance of the sector still largely reflects a Covid-19 narrative. “Be it in terms of its restrictions on trade or its impact on the labour market, the pandemic’s sustained influence on business and consumer sentiment remains concerning amid uncertainty about its trajectory.”
BUSINESS REPORT ONLINE