Brief uptick in factory data and confidence

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Inflation and interest rates are rising, food prices are increasing rapidly, consumer spending is slowing, and electricity tariffs have risen, which does not augur well for the economy.

Manufacturing production rose 1.9% in February, compared with a year ago, after contracting 2.6% in January while the South African Chamber of Commerce and Industry’s (Sacci’s) business confidence index rose slightly to 81.2 last month, from 80.1 the month before.

Manufacturing Circle executive director Philippa Rodseth said weak global and domestic demand was one of the main challenges for the sector and conditions would be made worse by labour and other costs.

"Rising costs will be a key item as we consider potential hikes in utility prices on top of the increasing costs of borrowing. Manufacturing conditions are fragile but we hope to see a positive impact on export-led growth due to the weaker exchange rate," Ms Rodseth said.

Higher production of petroleum, food, wood and communication apparatus boosted the data while steel and metals fell, reflecting poor global demand and prices for commodities.

Higher production may also have been due to "base effects" rather than an actual lift in output as there had been a contraction in February last year.

Surveys have shown that producers are buckling under the pressure of rising costs, have retrenched workers and still plan to do so.

Manufacturing output had been on a downward trend for several years and the improvement in production in February was not enough to change this, Stanlib chief economist Kevin Lings said.

Sacci CEO Alan Mukoki cautioned that sluggish global growth and low commodity prices would weigh on the economy.

Low business confidence implies weak fixed investment and job creation by the private sector.

Confidence edged up as exports, imports, share prices, private sector borrowing, precious metal prices and the rand improved. Municipal services, manufacturing, vehicle sales, retail sales and construction weighed on confidence.

Last week’s Constitutional Court judgment on Nkandla also lifted sentiment. It was important that the "positive tone" set by the judgment and the affirmation of the important role of Chapter 9 institutions be supported by "appropriate policy action" that could improve the business climate, Mr Mukoki said.

But Sacci warned that inflation, which adds to cost pressures, could rise to 10% "if not managed".

The Reserve Bank has been raising rates in an effort to tame inflation. Consumer inflation was already at 7% year on year in February, and producer inflation at 8.1%.