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Investors rattled by recent political developments; Western Cape manufacturing sector fairly stable

Recent political developments in South Africa have made investors very jittery and the outlook for the economy is still fragile, according to an Absa/Bureau for Economic Research (BER) presentation, delivered in Cape Town, on Friday.

“Our businesspeople in South Africa are clearly very concerned about the political environment and it’s one important factor why the private sector is not investing a lot at this stage,” said BER senior economist Hugo Pienaar.

He said hope had emerged for an improved political environment before recent events, but the latest attack on Finance Minister Pravin Gordhan had rattled investors.

This is also very obvious in the movements of the rand whenever there is news about charges against Gordhan.  Despite this, the outlook for the rand is not all bad.

“For now, we are fairly optimistic about the short-term outlook for the rand largely due to global factors which are relatively supportive. That’s if we don’t get downgraded in December. If that happens, the rand will get weaker.”

Pienaar said commodity prices were slowly starting to pick up.

“The outlook is not very optimistic but the trend is at least in the right direction.”

The building and civil construction sectors remained depressed, although confidence had lifted a little.

BER economist Lisette Ijssel de Schepper said the growth outlook for the Western Cape was stable, supported by services and to a lesser extent construction services.

Growth in the Western Cape’s manufacturing sector is more or less in line with the rest of the country. It is the third-biggest manufacturer in the country, scooping 15% of the national share.

Food, beverages and tobacco are the biggest sectors in the Western Cape manufacturing sector, so the province is shielded from what is happening in the mining sector.

Ijssel de Schepper said the province was more likely to be much more exposed to consumer spending slowdown given the structure of the economy.

Business confidence in the Western Cape manufacturing sector was above the national average, with confidence at 52% in the third quarter.

“Domestic demand is under pressure but it’s not as bad as the rest of the country. Exports are very volatile, but a lot more positive in the third quarter than at a national level.”

Cost increases in the Western Cape are lower, while selling price inflation is slightly higher.

“Fixed investment is much more optimistic in third quarter, but a slowdown is expected in the fourth quarter.”

Insufficient demand in the manufacturing sector was becoming a serious constraint, even though exports were doing fairly well, said Ijssel de Schepper.


Source: Engineering News