South African factory confidence falls again
Business confidence in South African factories fell in the third quarter, with manufacturers largely downbeat about investment prospects in the year ahead. Confidence fell to 27 points in the third quarter from 31 in the previous three months, according to the Absa/Bureau for Economic Research (BER) survey.
The pullback in confidence points to about 70% of respondents finding prevailing business conditions “unsatisfactory”. The sentiment reading for the sector has not been above the 50-point neutral mark since the fourth quarter of 2007, during the global financial crisis.
Companies reported that sales orders were under pressure, keeping production subdued despite easing cost pressure at the time of the survey. Domestic sales languished at a negative 21 points for the third consecutive quarter while export sales declined to minus 26 points in the third quarter from minus 20 in the second.
Manufacturers do not expect a material improvement in fourth-quarter domestic sales and expect exports to decline even further. The Absa/BER survey was published a week after Stats SA data showed that a 1.8% decline in factory output, which accounts for about 12% of GDP, helped push the economy into a 0.2% contraction in the second quarter.
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A higher number of manufacturers said that interest rates are a constraint to activities, with the metric for short-term borrowing costs as a constraint to present activities rising by seven points quarter on quarter to 43 in the third quarter. Metrics for politics and raw material shortages as constraints to current activities also rose in the third quarter.
The upcoming local government elections set for November 4 probably contributed to the rise in the politics metric, the Absa/BER report says. Among the three provinces surveyed, KwaZulu-Natal saw the biggest jump in the politics metric, while it increased slightly in Gauteng but was unchanged in the Western Cape.
The survey included biannual data for total investment, inventories and constraints on investment in 12 months, with the metric for total investment deteriorating to minus 10 points in the third quarter from minus 7 in the second quarter. As the South African Reserve Bank’s monetary policy committee (MPC) has kept its key policy rate unchanged in March, raised it by 25 basis points to 7% in May, and held it steady again in July, markets are expecting the MPC to further hike the policy rate next week.
