Exports from the economy’s second-biggest sector fell despite the stimulus of a weaker rand, while factories reported more job cuts and investment contracted for the first time since 2001, a detailed breakdown of a BER survey showed.

“In all, the results sketch a grim outlook for the sector,” said BER economist Christelle Grobler. “That suggests we may have to be more patient in expecting an improvement in its performance, especially if local and foreign demand conditions turn out weaker than expected.”

Factory output — which accounts for 16% of gross domestic product (GDP) — fell by an annualised 1% in the first quarter of this year, helping to curb the economy’s growth rate to 2,1% — its slowest pace for six and a half years.

A business confidence survey released by the BER earlier this month showed its manufacturing index dived by nine points to 37 — its lowest since the final quarter of 2000.

“The contraction was larger than expected and implies that local manufacturers failed to gain significantly from import substitution, which should be encouraged by the weaker rand exchange rate,” said Grobler.

The rand has weakened by 14% against the dollar and 18% versus a trade-weighted basket of currencies this year, in a trend which would normally make local exports more competitive.

But Grobler pointed out that factory exports have now fallen for five years in a row, dashing hopes of a recovery spurred by the currency’s steady decline.

SA’s overall exports have performed poorly despite a sustained rally in commodity prices, edging up to about 27% of GDP last year from just over 26% five years ago. “Furthermore, retrenchments of factory workers seem to be the order of the day. Manufacturers are responding to cost pressures by cutting jobs,” Grobler said.

Inflation has reached a five-year peak, with SA’s main consumer price gauge rising by an annual rate of 10,4% in April. Rising prices and debt costs have curbed consumer spending, the economy’s main engine of growth.

The BER said a net majority in the manufacturing sector — which accounts for 14% of employment — reported job losses for the second quarter in a row, with that measure rising to a seven-year peak. A net majority is the difference between positive and negative responses, excluding those who say conditions are the same.

Grobler said that in the first quarter manufacturing output was hit by power outages. In the second quarter, pressure stemmed mainly from rising debt costs and slowing domestic demand.

It was not yet clear whether manufacturing output would decline in the second quarter — putting the sector technically in a recession — as production had surged in April, she said.

Statistics SA said a 9,8% annual rise in factory output in April, rebounding from a decline in March, was distorted by the larger number of working days during the month, due to the timing of Easter holidays this year.

Skills shortages were also hurting performance in the sector, Grobler said. But the main bugbear was the rising cost of inputs, which reached a historic peak in the second quarter, driving selling prices higher. “Furthermore, the profitability of producers remains under pressure as they are unable to pass on the full extent of input cost increases via selling prices,” she said.

A net majority of manufacturers reported declines in production volumes, which was unexpected. Although the rate of contraction slowed from the first quarter, the decline was in line with levels seen in 1999, she said.

SA’s purchasing managers index, seen as a reliable gauge for manufacturing , fell below the neutral level of 50 last month after rising above it in April. The index fell to a five-year low at 43,7 in March, after dipping to 46,4 in February.