BER survey sees 'extreme' weakness

"The impact of the global economic crisis, which exacerbated the domestic economic slowdown already in motion, seems to be bringing the sector to its knees," said the BER on Friday, 20 March 2009.

Manufacturing business confidence almost halved, coming in at 16 index points from 31 previously.

Retrenchments of factory workers continued to increase as production plummeted. Moreover, respondents reported a sharp drop in the average hours worked per factory worker, which, says the BER, does not bode well for employment going forward.

"Respondents reported rapid contractions in both domestic and foreign demand with sales activity indicators coming in at record low levels. The unprecedented pace of decline in international order volumes in particular is testament to the abrupt halt in foreign demand," said BER economist Christelle Grobler.

The sudden worsening of demand took its toll on production volumes, which, according to the survey, registered further major weakening during the first quarter. "In line with the demand indicators, the production indicator has also now surpassed any previous lows on record. The fact that it also did so by a significant amount is worrying and highlights the magnitude of the impact of the severe global economic slump on local industrial activity," said Grobler.

Current conditions are not conducive to manufacturing fixed investment, which slowed suddenly during the quarter. "Survival mode seems to have kicked in, with producers shifting fixed investment plans to the bottom of their agendas," said Grobler.

Although the rate of increase in average total cost per unit of production dropped notably, with the cost of raw materials slowing significantly, domestic selling price inflation decelerated sharply as a result of the lack of demand.

Hence, manufacturers continued to experience pressure on their profitability. "In general, business conditions are not expected to improve in the near term and manufacturing business confidence is likely to be eroded further over the short run," concluded Grobler.

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