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Manufacturing survey shows improved sentiment in Q4, but trading conditions remain tough

Home Business Management Finance & Investment Manufacturing survey shows improved sentiment in Q4, but trading conditions remain tough

CONFIDENCE in the manufacturing sector has improved slightly to 26 points – the highest level seen in 2023, as shown by the Q4 Absa Manufacturing Survey.

Although trading conditions remained tough, manufacturers noted an overall improvement in business conditions (up 9 points). Domestic and export sales (up 7 and 6 points respectively) are performing better than their long-term averages, while the total cost per production unit decreased by 9 points.

“It is clear that easing electricity supply disruptions, the resulting increase in the average hours worked and improved production, have positively impacted sentiment in the sector,” said Justin Schmidt, head of manufacturing sector at Absa relationship banking. “Yet, current confidence levels are still too low to encourage large-scale growth or expansion.”

The quarterly survey, which covers approximately 700 businesspeople in the manufacturing sector, was conducted by the Bureau for Economic Research (BER) at Stellenbosch University between 25 October and 13 November 2023. The confidence index ranges between zero and 100, with zero reflecting an extreme lack of confidence and 100 extreme confidence where all participants are satisfied with current business conditions.

Indeed, as manufacturers enter their peak sales season in the fourth quarter, their production level rose 5 points, returning to positive territory for the first time in six consecutive quarters.

“Despite some positive results this quarter, manufacturers continue to note challenges in the operating environment, with respondents specifically mentioning issues at the ports, water shedding and political uncertainty,” Schmidt added. Given these constraints on current activities, manufacturers remain cautious to invest in machinery and equipment over the next 12 months.

Although dropping slightly, manufacturers’ current raw material and finished goods stocks are still considered adequate to meet planned production and expected demand in the quarter.

“South African manufacturers continue to prove their resilience as the Q4 survey results paint a slightly better picture compared to the rest of the year. In order to remain competitive, it is vital for manufacturers to continually evaluate their business operations and invest in cost-effective and efficient processes,” added Schmidt.

As the sector approaches a quieter Q1 and the 2024 national elections, manufacturers are more pessimistic regarding expected business conditions for the next 12 months. Still, forward-looking trade expectations indicate that the majority of manufacturers expect import and export volumes to increase in the coming months.

Absa continues to support this vital sector through a range of financial and non-financial solutions.

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