Manufacturing confidence rose by nine index points to 28 in the first quarter of this year, according to a business survey from Rand Merchant Bank and the Bureau for Economic Research (BER) last week.
That suggested sentiment in the economy's second-biggest sector was not improving in step with the purchasing managers index (PMI), a health gauge for factory output.
A breakdown of manufacturing confidence released Thursday, 18 March 2010, showed that transport equipment and basic metal industries were leading the recovery in SA's second biggest sector. Exports performed much better than expected, with the ratio of respondents reporting a decline shrinking to levels last seen in the second quarter of 2007.
But exports account only for about a third of the manufacturing sector, which makes up about 15% of overall output from the economy.
“A more broad-based recovery in manufacturing will have to come from domestic demand,” BER senior economist Christelle Grobler told Business Day.
She said exports were “driving the momentum” of the rebound in manufacturing, which is helping SA emerge from its first recession since 1992. The outcome of the survey, carried out last month, is in line with official data showing that factory output rose more slowly than expected in January compared with the same month last year.
But it contrasts with SA's latest PMI reading, which showed factory activity surged to its highest level in nearly three years last month. The index, sponsored by Kagiso Securities, climbed to 60.4 last month from 53.6 in January — well above expectations.
Grobler said one of the reasons for the apparent discrepancy may stem from the fact that the PMI mainly covers large companies while the confidence index included more small and medium-sized firms.
“Looking forward, conditions are expected to improve further, with the upturn in manufacturing activity spreading to more sub-sectors,” she said in a statement. Only 22% of respondents to the survey indicated that they expected business conditions to improve in six months' time, the BER said.
While production costs did not fall significantly, manufacturers had managed to raise selling prices.
Source: Business Day
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