Confidence among local manufacturers has reached the best level in two years during the second quarter of the year, according to financial services firm Absa's Manufacturing Survey for the second quarter.

The survey showed that business confidence rose seven points to 28 during the quarter, with zero reflecting an extreme lack of confidence and 100 extreme confidence.

“Over the past few years, manufacturers’ confidence levels have been broadly correlated to the intensity of loadshedding. Although business conditions remain tough, the suspension of loadshedding has been the main factor supporting improved sentiment this quarter,” said Absa Relationship Banking manufacturing sector executive Justin Schmidt.

Notably, capacity utilisation improved by 11 points to the best level seen since the fourth quarter of 2021. This is indicative of less slack capacity in the sector.

Further, relative to planned production and expected demand, both current raw material stocks, which increased 17 points, and finished good stocks, which increased 16 points, returned to positive terrain, reaching the highest levels recorded since 2022 and 2020.

Additionally, a nine-point increase in seasonally adjusted production bodes well for output during the quarter relative to the contraction posted in the first quarter. Indeed, both raw material shortages, down 14 points from the first quarter, and insufficient demand, down 5 points, are considered less constraining to current activities.

After five consecutive quarters of very negative readings, manufacturers are also more upbeat about fixed investment, which increased by 12 points.

“Given energy constraints, manufacturers have focused their recent efforts on staying operational by investing in renewable energy or generators. Perhaps now we will start seeing investment into capacity building,” said Schmidt.

Manufacturers further indicated a significant improvement in their intentions to invest in machinery and equipment over the next 12 months, up 21 points on the prior quarter.

Looking forward, more manufacturers are expecting business conditions to improve over the next 12 months, which increased by 20 points, with an increase in both import volumes expected, up 7 points, and export volumes expected, up by six points.

“While improved sentiment is an encouraging development, competition from cheaper imports, rand volatility, muted consumer demand and port-related issues remain concerns. The recent storms in KwaZulu-Natal could also result in downside risk,” noted Schmidt.