The outlook for manufacturing output in South Africa remains precarious as the sector began the third quarter of 2023 on a slower positive growth, indicating the extent of damage caused by load shedding on the economy.
Data from Statistics South Africa (StatsSA) yesterday showed that manufacturing production rose by 2.3% year-on-year in July, following a downwardly revised 5.5% increase in June, and missing market estimates of a 4.4% surge.
This marked the fourth consecutive month of positive year-on-year growth in industrial activity, albeit at a modest pace, in part due to fading low-base effects.
StatsSA’s director of industry statistics, Nicolai Claassen, said six of the 10 manufacturing divisions recorded a rise in economic activity.
“Petroleum, chemical, rubber and plastic products, and the automotive division, drove much of the upward growth. The petroleum, chemical, rubber and plastic products division expanded by 6.8%, and the automotive division by 9.5% year-on-year,” Claassen said.
“Four manufacturing divisions registered a decline. These include textile and clothing, metals and machinery, food and beverages, and furniture and other manufacturing.”
Economists have pointed out that conditions in the manufacturing sector remain fragile, along with most other sectors of the economy.
Investec economist Lara Hodes said South Africa’s numerous domestic challenges, including electricity supply and logistical constraints, continued to impede activity, while the subdued global manufacturing environment undermined export potential.
Hodes said that according to the JP Morgan Global Manufacturing Purchasing Managers Index (PMI) survey results, the global manufacturing sector remained mired in contraction at the start of the second half of the year.
“Looking ahead, advance indications provided by the August seasonally adjusted headline PMI show that the gauge ticked up modestly but remained in contractionary territory for the seventh consecutive month,” Hodes said.
“Indeed, elevated production costs continue to weigh on producer profitability with another large petrol and diesel price increase implemented at the beginning of September.”
On a seasonally adjusted monthly basis, which aligns with the official calculation of quarterly GDP growth, StatsSA said manufacturing output fell by 1.6% in July, a deterioration from the 1.2% monthly increase recorded in June, and defied market forecasts of a 0.5% increase.
This marked a weak start to the third quarter and is consistent with the PMI business activity, which surprisingly tanked by 10.8 points, reaching 38.1 points in July.
After experiencing load shedding reprieve in June, Eskom somewhat ramped-up load shedding intensity in July but did not reach the severe levels that were expected.
Nevertheless, the PMI business activity index for August recovered sharply by 11.9 points, indicating that the monthly decline in July would have been transitory.
FNB senior economist Thanda Sithole said manufacturing output had increased by 0.4% in the year-to-date, from January to July, reflecting an improvement from the 0.5% decline recorded over the corresponding period last year.
Despite several headwinds, Sithole said the sector maintained its quarterly growth momentum in the first half of 2023, contributing the most to the second quarter’s real gross domestic product growth.
“The year-to-date growth performance is primarily attributed to increased activity in the motor vehicles, parts and accessories and other transport equipment division, as well as food and beverages and basic iron and steel, non-ferrous metal products, metal products and machinery,” Sithole said.
“Manufacturing output is likely to have rebounded in August, but the near-term outlook remains precarious amid continued load shedding, logistics challenges, and weak demand.”
BUSINESS REPORT