13 June 2024
Confidence among local manufacturers has reached the best level in two years.
This is according to the Q2 Absa Manufacturing Survey, which showed that business confidence rose 7 points to 28 during the quarter.
“Over the last few years, manufacturers’ confidence levels have been broadly correlated to the intensity of load shedding. Although business conditions remain tough, the suspension of load shedding has been the main factor supporting improved sentiment this quarter,” said Justin Schmidt, Executive: Manufacturing Sector at Absa Relationship Banking.
The quarterly survey, which covers approximately 700 businesspeople in the manufacturing sector, was conducted by the Bureau for Economic Research (BER) at Stellenbosch University between 9 and 27 May 2024. The confidence index ranges between zero and 100, with zero reflecting an extreme lack of confidence and 100 extreme confidence where all participants are satisfied with current business conditions.
Notably, capacity utilisation improved by 11 points to the best level seen since the last quarter of 2021. This is indicative of less slack capacity in the sector. Relative to planned production and expected demand, both current raw material and finished good stocks returned to positive terrain, increasing 17 and 16 points respectively, reaching the highest levels recorded since 2022 and 2020. Additionally, a 9-point increase in seasonally adjusted production bodes well for output during the quarter relative to the contraction posted in the first quarter. Indeed, both raw material shortages and insufficient demand are considered less constraining to current activities (down 14 and 5 points respectively).
After five consecutive quarters of very 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,” said Schmidt. Manufacturers further indicated a significant improvement (up 21 points) in their intentions to invest in machinery and equipment over the next 12 months.
Taking a forward-looking view, more manufacturers are 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,” noted Schmidt.
Absa has a team of sector experts with in-depth knowledge of the manufacturing landscape and remains committed to support this vital sector with a range of future-fit financial and non-financial solutions. For more information, visit our Manufacturing site.
For more information, please contact:
Rania Hasanen on 071 557 3709 / rania.hasanen@absa.africa
