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BER: Manufacturing sector showing signs of distress

Staff Reporter

South Africa's manufacturing sector showed signs of severe distress as demand plummeted, the Bureau of Economic Research (BER) said on Friday.

South Africa’s manufacturing sector showed signs of severe distress as demand plummeted, the Bureau of Economic Research (BER) said on
Friday.

This followed the release of its latest survey which showed “extreme and broad-based weakness in the manufacturing sector”.

The impact of the global economic crisis, which exacerbated the domestic economic slowdown already in motion, seemed to be bringing the
sector to its knees, the BER said in a statement.

Manufacturing business confidence in the first quarter of 2009 almost halved, coming in at 16 index points—down from 31 previously.

“Respondents reported rapid contractions in both domestic and foreign demand—with sales activity indicators coming in at record low levels.

“The unprecedented pace of decline in international order volumes in particular is testament to the abrupt halt in foreign demand,” BER economist Christelle Grobler said.

The sudden worsening of demand took its toll on production volumes, which according to the survey registered further major weakening during the first quarter.

“In line with the demand indicators, the production indicator has also now surpassed any previous lows on record.

“The fact that it also did so by a significant amount is worrying and highlights the magnitude of the impact of the severe global economic slump on local industrial activity,” Grobler said.

She added that retrenchments of factory workers continued to increase as production plummeted.

Moreover, respondents reported a sharp drop in the average hours worked per factory worker, which did not bode well for employment.

“Current conditions are not conducive to manufacturing fixed investment, which slowed suddenly during the quarter.

“Survival mode seems to have kicked in, with producers shifting fixed investment plans to the bottom of their agendas,” Grobler warned.

Although the rate of increase in average total cost per unit of production dropped notably, with particularly the cost of raw materials slowing significantly, domestic selling price inflation decelerated sharply as a result of the lack of demand.

Hence, manufacturers continued to experience pressure on their profitability, she said.

“In general, business conditions are not expected to improve in the near term and manufacturing business confidence is likely to be eroded further over the short run,” Grobler said. - Sapa

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