The bureau said the dip in business confidence was fully supported by the underlying indicators. BER economist, Lisette IJssel de Schepper, said: "The reported deterioration in activity and demand, as well as signs of renewed pressure on profitability, could have warranted a steeper fall in manufacturing business confidence."
It said domestic demand remained weak and the export performance deteriorated over the period. "While the rand exchange rate has lost significant ground against the dollar, the currency has remained relatively stable on a trade-weighted basis. In fact, the real effective exchange rate strengthened of late, which could have affected the competitiveness of South African exports in international markets."
With selling price inflation under pressure and volume growth slowing, pressure on profitability from a revenue side increased. This was amplified by a sharp acceleration in the rate of increase in the average total cost per unit of production.
"The forthcoming electricity tariff increase will put further pressure on costs. In addition, pressure on fuel prices also remains on the upside after a few months of relief at the start of the year," IJssel de Schepper said. "The increased usage of generators due to frequent load shedding pushes up costs even more than usual."
IJssel de Schepper concluded that conditions in the manufacturing sector were tough during the current quarter and were expected to remain harsh going forward.
Source: BDpro
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