Manufacturing output in South Africa is expected to remain volatile in the months ahead in spite of recording a second month in a row of positive year-on-year growth in May.
Data from Statistics SA (StatsSA) yesterday showed that manufacturing production rose more than expected and increased by 2.5% year-on-year in May, above market forecasts of a 2.3% rise, following an upwardly revised 3.6% surge in April.
This second consecutive month of growth in industrial activity followed six consecutive months of decline, and was mainly boosted by the manufacture of motor vehicles, parts and accessories and other transport equipment.
Stats SA’s director of industry statistics, Nicolai Claassen, said eight of the 10 manufacturing divisions recorded a rise in economic activity.
“The automotive division was the largest positive contributor to the overall rise in manufacturing production, expanding output by 15.1% year-on-year (from 4.9% in April). This was mainly driven by the production of parts and accessories,” Classen said.
“The metals and machinery division was the second-largest positive contributor, growing by 5.8% (from 4.7% previously).
“Most other divisions recorded a positive year-on-year growth, with the exception of two. The two divisions that registered a decline were petroleum, chemical products, rubber and plastic products, and furniture and other manufacturing.”
However, manufacturing output shrank by 1.3% in May on a seasonally adjusted monthly basis after expanding by an upwardly revised 0.7% in April.
This has clouded expectations of the sector’s positive contribution to second quarter GDP growth.
In 2022, manufacturing contributed 12.04% of South Africa’s GDP with a gross value-add of more than R510 billion.
The sector has historically been credited as a key driver of higher value job creation and has been vital to the economy, even though it has become severely depressed in recent years.
Data from recent Purchasing Managers’ Index (PMI) surveys have shown that the improvement in the country’s energy crisis has failed to lift the manufacturing sector from the contractionary territory.
Eskom has so far managed to avert the worst-case scenario due to improving electricity generation capacity when it had forecast load shedding up to Stage 8 for the winter months.
FNB senior economist Thanda Sithole, however, said there were still a number of headwinds facing the manufacturing sector other than the power crisis.
“We maintain our view that near-term activity in the manufacturing sector remains fragile and clouded by the uncertain direct impact of load shedding, particularly during winter (and beyond), transport and logistical constraints, as well as moderating domestic and external demand,” Sithole said.
“This is consistent with the latest manufacturing PMI for June, which remained in contractionary terrain for the fifth successive month and, in fact, fell to 47.6 index points from 49.2 in May, despite load shedding reprieve.”
In the months January to May, manufacturing output fell by 1.1% compared to the same period last year, also underscoring weakness in manufactured non-durable goods.
Investec economist Lara Hodes concurred that advance indications provided by PMI survey results revealed that business activity remained lacklustre in May, hindered by persistent load shedding, and thus stifling productivity.
Hodes said the JP Morgan Global Manufacturing PMI survey results for June also slipped to a six-month low, while business optimism reached its lowest level in seven months.
“Domestic demand remains muted with South Africa’s multitude of challenges weighing on confidence and investment appetite,” Hodes said.
“Advance indications provided by June’s JP Morgan Global Manufacturing PMI survey results further evince the fragile state of the global economy.”