Manufacturing confidence up 5 points says BER

BER's Lisette IJssel de Schepper. Image BER

Manufacturing business confidence rose five points to 41 in the first quarter according to the Bureau for Economic Research's (BER) manufacturing survey released last week. Despite the improvement‚ the level of 41 implied that about six out of 10 manufacturers remained unsatisfied with current business conditions.

"The recovery in business confidence was most likely driven by better export performance and the indication that profitability levels might have improved"‚ said BER economist Lisette IJssel de Schepper.

Manufacturers are benefiting from a weaker rand that makes local exports competitive globally‚ although they are having to deal with rising input costs‚ especially those relating to labour and fuel.

The BER said manufacturers indicated a significant improvement in export performance‚ with both the indicators for export sales and order volumes reaching multi-year record highs. Manufacturers were also optimistic about the future of SA exports.

"Exports are likely to be supported by the weaker rand exchange rate and the gradual recovery in the global economy"‚ IJssel de Schepper said. The International Monetary Fund (IMF) forecasts the global economy will grow by 3.7% in 2014 and 3.9% in 2015.

Raw materials prices

The BER said that the rate of increase in the purchasing price of raw materials had picked up sharply. While the weak rand boosted exports‚ it made imported input costs, paid for in foreign currency, more expensive.

The survey showed that production volume growth slowed and that manufacturers reported further retrenchments compared with the same quarter last year.

Domestic order and sales volumes were expected to bounce back during the second quarter of 2014‚ driven by external as opposed to domestic demand. Consumer demand was moderating as rising administered costs weighed on household incomes.

According to the BER the survey showed that indicators for current and planned fixed investment rose sharply‚ suggesting that investment was aimed at replacing‚ rather than adding to existing capital stock.

"The underlying survey results suggest that manufacturers anticipate the underlying business environment will recover in the short-term‚ which should support business confidence‚" IJssel de Schepper added.

She identified renewed pressure on profitability‚ possible electricity supply disruptions and labour strikes in the sector as key risks in the months ahead.