South African companies are expecting trade activity for the next six months to deteriorate as the cost of business escalates, with declining sales due to record high consumer inflation driven up by rising fuel prices.
The SA Chamber of Commerce and Industry (Sacci) yesterday said that businesses were currently facing a challenging trade environment.
Sacci’s trade conditions survey for May showed that expectations for trade activity for six months mirrored the prevailing uncertainty in the global market.
The trade expectations index subsided into negative territory and lost 12 index points between April and May as the majority of companies surveyed were pessimistic about the future.
Sacci economist Richard Downing said only 48 percent of the respondents in May expected trade conditions to improve six months from now compared to 59 percent in April.
Downing said that declining sales volumes and fewer new orders were the main reason for the negative outlook.
“Inflationary pressures were mainly cost-push driven as more than 80 percent of the respondents expect input costs to rise,” Downing said.
“Sales prices are expected to increase at a slower pace mainly due to slowing economic conditions and uncertain demand.
“Rising fuel prices, the inherent cost push associated with higher financing costs have an associated impact on the trade environment.
“Load shedding, crime and logistical constrictions were among the pressing external factors listed by respondents that restrain trade.”
Sacci also said the present sanguine trade conditions caused employment opportunities in the trade sector to remain tight, with only 38 percent of respondents indicating increasing their staff component at present.
This comes as business confidence in the manufacturing sector has also plummeted due to devastating floods in KwaZulu-Natal and the rotational power cuts.
Meanwhile, the latest Absa Manufacturing survey released yesterday showed that sentiment levels across the manufacturing sector dropped 14 points to 29 in the second quarter of 2022.
The survey indicated that manufacturers experienced a drop in both domestic and export sales, while insufficient demand was seen as a more serious constraint to current activities than at the start of the year.
In their commentary, manufacturers noted a lack of reliable energy as a hindrance to their growth, while the use of generators became less of an option due to rising fuel prices.
Justin Schmidt, the head of manufacturing sector at Absa Retail and Business Bank, said additional headwinds had caused a decrease in confidence after a fairly upbeat set of results in the first quarter of 2022.
Schmidt said during the second quarter, the impact of the floods in KwaZulu-Natal, increased load shedding, and the Russia-Ukraine war had weighed heavily on manufacturers.
“As consumers feel the pinch of rising food and fuel prices along with increasing interest rates, the manufacturing sector may experience the spillover effect of reduced disposable income resulting in lower demand,” Schmidt said.
“While the expectation was that the sector would continue to rebound in the second half of the year, these shocks have created another setback that manufacturers will need to overcome.”
Schmidt said South Africa needed higher levels of infrastructure investment and faster regulatory reform to support manufacturers’ post-pandemic recovery and future growth.
BUSINESS REPORT