Manufacturing production declines again, hampered by weak demand, load shedding
CAPE TOWN – Manufacturing production continued to contract in December, declining by a marked 5.9 percent year on year, following November’s disappointing 3.6 percent year-on-year slide, according to preliminary data released by Statistics South Africa (StatsSA) on Tuesday.
Steel and Engineering Industries Federation of Southern Africa (Seifsa) economist Marique Kruger said this captured a second consecutive monthly dip in manufacturing production as companies struggle to contain prevailing challenges and sustain robust output levels.
Speaking after the release of the manufacturing production figures, Kruger said the data, which generally reflects a decrease in output for December 2019, did not augur well for companies in both the metals and engineering cluster of industries and the broader manufacturing sector.
She said the data dampened the mood ahead of the much-anticipated State-of-the-Nation Address by President Cyril Ramaphosa.
All 10 manufacturing divisions recorded negative annual growth. The largest detractors from annual production growth were motor vehicles, parts and accessories and other transport equipment, which declined by 24.9 percent year on year, as well as petroleum, chemical products, rubber and plastic products, which dropped by 5.9 percent.
These two divisions each subtracted 1.4 percentage points from total manufacturing production growth, according to StatsSA.
On a month-on-month basis, the manufacturing sector’s performance was also disconcerting, registering -2.8 percent in December 2019 when compared to a revised -1.8 percent in November 2019.
“The general decrease in output is not good for struggling businesses in the manufacturing sector, including its diverse metals and engineering cluster of industries, which are continuously facing headwinds underpinned by stagnant domestic demand, unpredictable and costly energy supply, high petrol prices and logistics costs,” said Kruger.
FNB Senior Economist Geoff Nolting said looking ahead, they expected near-term manufacturing production output to be further hampered by the recent bouts of load shedding.
“The likelihood of recurring stage two load shedding is also elevated over the medium term, while domestic demand is expected to remain particularly weak. Against this backdrop, manufacturing production in SA is unlikely to gain any meaningful traction over the near term,” said Nolting.
Investec economist Lara Hodes said this was reflective of South Africa’s fragile economic situation, underpinned by weak demand.
She said on a quarter-on-quarter, seasonally adjusted, annualised basis, which is the measure used to calculate gross domestic product (GDP), manufacturing production fell by 1.2 percent, confirming that the manufacturing sector would again make a negative contribution to GDP in the fourth quarter of 2019.
“A subdued demand environment continues to plague the domestic economy. Growth prospects have softened, while consumer balance sheets remain under pressure and unemployment is hovering at historically high levels.
“Additionally, while there was some indication that the downturn in global manufacturing may have stabilised to some extent, with the scope of improvement into 2020, the outbreak of novel coronavirus has reignited fears of a global growth and trade fallout,” she said.
Hodes said if this persisted it would continue to undermine South Africa’s export potential, however recent evidence suggests that the rate of spread of the disease could be slowing.