After a difficult 2011, things are looking up for the manufacturing sector.
Stats SA said this week the economy grew 3.1% last year after recording surprisingly strong fourth-quarter growth of 3.2%. Manufacturing contributed 0.4 percentage points to this, thanks to quarter-on-quarter growth of 4.2%.
For the year as a whole, the strike-hit sector grew by just 2.4%, hit by strikes.
Iraj Abedian, CEO of Pan-African Research and Investment Services and economic adviser to industry body the Manufacturing Circle, said the fourth quarter was "a welcome turnaround".
According to the Manufacturing Circle's quarterly bulletin, the proportion of respondents who felt business confidence was "modest to good" more than doubled from 14.6% to 31.3% from the third to the fourth quarter.
Almost 80% of respondents projected business conditions for the next two years to be stable.
The positive outlook for manufacturing showed in the substantial rise in the purchasing managers index (PMI) compiled by Kagiso and the Bureau for Economic Research.
The PMI, a forward-looking indicator of the economic health of the manufacturing sector, rose by 4.7 index points to reach 57.9 in February, the highest level since February 2010.
The sub-index for expected conditions rose to 66.2 index points and the PMI leading indicator (new sales orders as a ratio of inventories) rose from 1.07 to 1.26 in February.
But despite the optimism and better results, the manufacturing sector is still under pressure, said Abedian.
These pressures include the eroding of the export sector due to continued global economic woes and the strong exchange rate, inadequate skills, the high cost of production and the rising cost of accessing credit. The ongoing global problems make the manufacturing sector very dependent on domestic demand.
Strikes could also be a problem, as unions have reasons to try to extract rent in a fluid political environment, Abedian said.
On the positive side, Stewart Jennings, chairman of the Manufacturing Circle, said the motor industry and the Steel and Engineering Industries Federation of SA now have long-term wage agreements.
The quarterly bulletin forecasts manufacturing GDP to grow by 4.23% this year and 5.04% next year. Real manufacturing wages are expected to grow by 1.03% and 2.5% respectively.
Article by RENÉ VOLLGRAAFF Business Times
http://www.businesslive.co.za/southafrica/sa_markets/2012/03/03/tide-is-turning-in-manufacturing
