Business confidence in the manufacturing sector deteriorated by four index points quarter-on-quarter to 27 in the third quarter of the year, as weak domestic demand, deteriorating export activity and persistent economic uncertainty continued to weigh on business performance, financial services firm Absa’s Manufacturing Survey for the third quarter shows.

Domestic sales remained muted for a third consecutive quarter, while export sales declined by a further six index points. Domestic orders also retreated by seven index points and export orders by five index points, while capacity underutilisation increased, which points to greater spare capacity in the sector.

Cost pressures eased somewhat, with the total unit cost of production declining from its second-quarter spike.

Selling-price indicators, however, remained elevated and increased further.

These positive developments were insufficient to offset prevailing negative sentiment, with general business conditions continuing to trend downward, the bank says.

“The Absa survey results again highlight the challenges arising from weak demand, difficult global trading conditions and lingering uncertainty following the sharp cost shock experienced in the second quarter,” says Absa Business Banking manufacturing sector specialist Sachin Chanderdhev.

“While inflationary pressures appear to have moderated compared to previous years, consumers and businesses continue to carefully weigh their purchasing and investment decisions.

“Manufacturers thrive on operational continuity and maximum plant utilisation and this is proving increasingly difficult in an environment characterised by subdued demand and weak sales,” he says.

The survey shows that 66% of manufacturers identified insufficient demand as a key constraint within the current operating environment.

Among the major subsectors, most recorded an overall decline in business confidence, with the exception of metals and machinery, which posted a six-point increase to a confidence score of 31.

Further, despite lower confidence scores, the chemicals and transport subsectors recorded a significant improvement in production levels, marking an encouraging recovery following two consecutive quarters of weak output.

Additionally, the textiles subsector delivered the strongest sales performance, across both domestic and export markets, while export orders also surged during the quarter.

Despite challenging conditions, the manufacturing sector continued to invest selectively, with fixed investment improving by ten index points during the quarter.

This relative resilience in capital spending is encouraging, particularly against the backdrop of weak demand and subdued confidence, and suggests that manufacturers are still positioning for future growth rather than simply retrenching, says Absa.

The survey also points to a more constructive medium- to long-term outlook. Expectations for export volumes over the next 12 months improved by ten points, while planned investment in machinery and equipment remains positive.

“Manufacturers continue to contend with elevated input costs, including fuel, labour and raw material expenses, which place pressure on profitability and cash flow management. Yet, the sector continues to demonstrate remarkable resilience,” says Chanderdhev.

“Investment decisions are increasingly focused on improving efficiencies, eliminating unnecessary costs and strengthening competitiveness to capitalise on future growth opportunities as demand conditions improve.”