Second quarter manufacturing survey shows rising confidence

Business confidence in the manufacturing sector rose significantly by 21 points to a total of 46 in the second quarter of 2021, the highest it has been since 2012, according to the Q2 Absa Manufacturing Survey.

“The increase was largely driven by strong selling price increases and output growth,” says Justin Schmidt, head of manufacturing sector at Absa. “Better than expected demand resulted in higher capacity use and early indications suggest this may continue, as manufacturers are positive about the export outlook over the next 12 months.”

The Bureau for Economic Research (BER) at Stellenbosch University conducts the survey quarterly among about 700 business people in the manufacturing sector. This survey was conducted between 12 and 31 May 2021. The index ranges between 0 and 100, with zero reflecting an extreme lack of confidence and 100 extreme confidence.

ALSO READ: GDP growth welcomed, but still in negative territory

Positive signs of growth and recovery

The survey findings confirmed recent data showing positive signs of growth and continuing recovery, such as the country’s real GDP that grew by a seasonally adjusted 4.6% quarter-on-quarter in the first quarter and manufacturing continuing its recovery with a 1.6% increase quarter-on-quarter.

Ahead of the second quarter, the Absa Purchasing Managers Index (PMI) rose to 57.8 points in May from the April figure of 56.2 points.

ALSO READ: Improved economic outlook for SA, with caveats – Absa

But not out of the woods yet

However, the manufacturing sector is not out of the woods yet, as the majority of manufacturers indicated low levels of raw material stocks relative to their planned production for the third quarter in a row. Schmidt says this is having a knock-on effect on input prices for manufacturers.

Most manufacturers have also noted that finished goods stocks are low relative to expected demand, with this sub-index reaching its lowest level on record. According to Schmidt, this is not only a further indication of the shortage of available raw materials but, in a positive way, also an indication that demand continues to exceed expectations.

ALSO READ: South African motor industry booming despite pandemic

Improvements expected

Manufacturers are also more optimistic for the next 12 months and the majority expect trade and business conditions to improve.

“Forward looking expectations have to come to fruition before we will see sustained investment into new capacity in the sector,” Schmidt said.

However, he points out, load shedding, as well as the impact of the third wave of Covid-19, pose a risk to the recovery.