Johannesburg - Although manufacturing production in South Africa increased by 2.2 percent in August, the outlook for the manufacturing sector remains relatively poor.
Data released by Statistics SA showed yesterday that factory production came down 1 percent on a month-on-month basis but edged up 0.1 percent in the three months to August compared with the previous three months. The market consensus was a 1.3 percent year-on-year increase in manufacturing volumes.
Nedbank said subdued global demand and low international commodity prices would contain the upside for most export-oriented industries.
It said due to sharp and persistent cutbacks to capital expenditure in mining, manufacturing and other parts of the economy would undermine demand for the products of those manufacturing industries that supplied inputs to capital projects.
“Weaker household finances and low consumer confidence will also hurt those industries that primarily serve the domestic market,” Nedbank said.
“The forward-looking Barclays purchasing managers index shows that the reading for August and September remained below the key 50 threshold that signals contraction. Manufacturing production is likely to be drag on (gross domestic product) in the third quarter.”
Hanns Spangenberg, an analyst at NKC African Economics, said the second consecutive month-on-month contraction in manufacturing lent strength to the view that the economic rebound in the second quarter was likely to be temporary in nature.
He said the manufacturing sector faced several headwinds, including a consumer base dealing with relatively high inflationary pressure that was set to intensify in coming months.
“Recent political developments are set to place pressure on the rand, which will further incite inflationary pressures. While the Reserve Bank has been more dovish of late, and alluded to the end of its interest rate hiking cycle at the September monetary policy committee meeting, the latest developments may provide justification for the central bank to re-evaluate its inflation projections,” Spangenberg said.
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