Manufacturers hopeful of mid-term recovery
MANUFACTURING companies have remained more confident about the 12-month outlook for business activity in spite of economic recovery slowing under level 3 lockdown in February.
Data released by IHS Markit yesterday showed that the composite single-figure indicator of private sector business performance barely managed to remain on expansionary territory during the month.
IHS Markit said its purchasers’ managers index (PMI) dipped back to 50.2 index points from 50.8 in January as demand failed to pick up again on slower recovery in business conditions.
The group said private sector output growth softened since the start of the year as new business was again broadly unchanged under lockdown restrictions.
The latest reading indicated that new business was broadly unchanged for the third month in a row as demand trends fell, with domestic spending and export demand remaining weak.
This prompted greater efforts by manufacturing companies to lower both employment and inventories and offset a sharp rise in purchase costs.
Employment fell to the greatest extent since last October amid a reduction in outstanding work. IHS Markit said some firms also mentioned that input shortages and adverse weather meant they were unable to scale up output.
IHS Markit economist David Owen said weak consumer spending continued to hold back the South African economy as new order volumes remained at a similar level to that seen last November. Owen said the slowdown resulted in larger cuts to staffing and inventories as businesses looked to remove excess capacity and offset rising cost pressures. “However, this could further depress sales, particularly as several firms commented that job losses were contributing to lower domestic demand,” Owen said.
“Vaccines could provide a ray of light and encourage greater business investment, but for now, economic growth remains mild.”
Meanwhile, IHS said business optimism has improved to its highest for 12 months, driven by hopes of an end to the pandemic and a strong rebound in economic activity during 2021.
Approximately one-in-three firms gave a positive forecast for output, although lingering economic uncertainty meant that some respondents were downbeat.
President Cyril Ramaphosa this week eased lockdown restrictions to alert level 1, with fewer hours of curfew and alcohol sales returning to normal trading hours following a decline in new Covid-19 cases.
The group said despite current economic trends remaining weak, business confidence strengthened to the strongest since before the Covid19 outbreak. It said there were hopes that the pandemic would end in the near future and that easing restrictions would allow more businesses to reopen.