South African manufacturing business confidence has plunged 18 index points, from 47 in the first quarter, to 29 in the second quarter – its lowest level in two years.

Bureau for Economic Research (BER) economist Christelle Grobler said on Friday the drop in confidence was sharper than expected, adding that it was linked to the recent uptick in global and domestic economic uncertainty.

The manufacturing confidence survey results, published a day after the BER Business Confidence Index, which Rand Merchant Bank sponsors, also reflected concern over the state of the domestic and world economies.

“Not only does the highly fluid situation in Europe pose a threat to world growth, but the local economic environment has also become more uncertain. There is mounting apprehension regarding the outlook for household consumption expenditure with the current round of BER surveys showing a sharp drop in retail business confidence,” said Grobler.

Increased uncertainty regarding domestic conditions is also evident in the rise in the percentage of manufacturers rating the general political climate as a constraint to its highest level in 11 years.

The percentage of respondents rating the present level of output below capacity increased to 81% from 74% in the first quarter. This is the highest reading since the third quarter of 2010.

The employment indicator again dipped back further into negative territory during the quarter, while the rate of increase in unit labour cost rose notably. Further evidence of the weak employment prospects in the sector can be seen in the decline of the average hours worked for each factory worker.

Demand and production indicators did not deteriorate in the second quarter, according to the survey. This is in line with the manufacturing production figures for April, released on Thursday by Statistics South Africa, which showrd continued slow growth in manufacturing production during the month with volumes rising 1.2% year-on-year.

“Even with the production indicator remaining stable, other survey results such as continued retrenchments, a drop in unfilled orders in relation to expected demand and producers’ own rating of capacity use, all point towards a loss of momentum in the recovery of the manufacturing sector,” Grobler concluded.