The Bureau for Economic Research (BER) has warned that a possible further increase in input costs has the potential to sour the robust sentiment in the manufacturing industry. Picture: Oupa Mokoena/African News Agency (ANA)
THE BUREAU for Economic Research (BER) has warned that a possible further increase in input costs has the potential to sour the robust sentiment in the manufacturing industry.
This comes at a time when global oil prices have skyrocketed due to fears of global supply constraints amid the ongoing war between Ukraine and Russia, one of the world’s largest oil suppliers.
The BER yesterday said the manufacturing industry could be impacted as the war spills over in an environment where demand was still recovering.
It said this could also mean that not all cost increases can be pushed on to consumers through price increases.
“Looking ahead, a surge in the Brent crude oil price means that the fuel price will again increase sharply this week, with inputs from the petrochemicals value chain also more expensive,” it said.
“The risk is that the oil price remains high(er). This, or a sudden weakening of the rand exchange rate, also has the potential to lift freight costs even higher, which some respondents already flag as a key concern.
“Renewed disruptions in the workings of global supply chains amid an escalation of the Ukrainian conflict will not only have cost implications, but could also negatively impact sentiment.” The BER, however, said that purchasing managers have so far remained upbeat about expected business conditions in six months’ time.
Manufacturing activity in South Africa continued to fare well during the second month of the year, rising to its strongest pace in 15 years and supported by better demand.
The seasonally adjusted Absa Purchasing Managers’ Index (PMI), released yesterday, rose to 58.6 index points in February following a 3-point rise to 57.1 points in January.
The headline PMI is an economic activity index based on a survey conducted by the University of Stellenbosch’s BER and sponsored by Absa.
The latest PMI reading pointed to the 7th straight month of expansion in manufacturing activity, and the highest since March 2007.
The improvement was driven by increases in all five subcomponents making up the headline PMI, with new sales orders rising the quickest since the second quarter of 2021.
The BER said this was likely, to a large extent, driven by an improvement in exports, which rose further from an already upbeat January reading. It said respondents were particularly optimistic about export sales, but, for the first time in a long while, domestic demand was likely also relatively undisrupted during February.
Better demand supported a further rise in production volumes with the output index ticking up to a healthy 59.6 points in February, despite a bout of load shedding at the start of the month.
Investec economist Lara Hodes said while this was positive for the trajectory of the manufacturing sector, risks remained. She said these included renewed bouts of load shedding and rising geopolitical tensions globally which could affect international trade at a time when supply side constraints are still a key issue.
siphelele.dludla@inl.co.za
BUSINESS REPORT ONLINE