Photographer: Jeff Kowalsky/Bloomberg
Photographer: Jeff Kowalsky/Bloomberg

Manufacturers remain optimistic in third quarter - Absa

By Siphelele Dludla Time of article published Sep 16, 2021

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South African manufacturers have remained optimistic about the overall business conditions in the coming months after the impact of the civil unrest and lockdown restrictions dented their confidence in the third quarter of 2021.

The third quarter Absa Manufacturing Survey released yesterday saw a slight dip in overall sector confidence, with business confidence falling five points to 41 during the quarter.

The quarterly survey, which covers 700 business people in the manufacturing sector, was conducted by the Bureau for Economic Research (BER) at Stellenbosch University between August 11 and 30.

Absa said although official manufacturing production data for July highlighted the economic damage of the riots, these shocks were relatively short-lived and August should see some rebound in output.

Though the print remained in the contractionary territory below 50 points, it was nonetheless better than the third quarters of the last two years.

Head of manufacturing sector at Absa Retail and Business Bank, Justin Schmidt, said the drop in confidence was not too surprising due to continued uncertainty regarding Covid-19 lockdown restrictions, as well as the unrest experienced in KwaZulu-Natal and Gauteng.

“While the fall is disappointing, the current level remains well above those experienced during 2019 and 2020 and in line with the long-term average,” Schmidt said.

The third quarter survey data regarding inventories was more positive than in previous quarters.

Schmidt said manufacturers noted an improvement in both their raw material stock relative to their planned production and their finished goods stock relative to expected demand.

He said manufacturers will increase their investment in inventory as they head into their peak sale season.

“Indeed, a sizeable majority of manufacturers expect an increase in inventory investment in the next 12 months, which is a good lead indicator for future growth,” he said.

However, margin pressure remained a concern as the total cost realised per production unit increased by 10 points to 71 during the quarter, the highest it has been since the fourth quarter of 2018.

“Respondents flagged increased raw material costs, high plastic, steel and packaging costs, rising electricity tariffs as well as elevated transport costs as key contributors to margin pressure,” Schmidt said.

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