Manufacturing slows in December but technical recession avoided

File photo of a production line at a BMW plant in Rosslyn, South Africa.

File photo of a production line at a BMW plant in Rosslyn, South Africa.

Published Feb 9, 2024


South Africa is likely to avoid a technical recession in the final quarter of 2023 when gross domestic product (GDP) data is tallied, in spite of manufacturing activity rising the slowest in three months in December 2023.

Statistics South Africa (Stats SA) yesterday said that the growth in manufacturing production slowed to 0.7% year-on-year in December, down from an upwardly revised 2.5% rise in November.

This December, manufacturing print was below forecasts of a 2.5% hike, on the back of ongoing electricity supply challenges and weak global demand.

Stats SA said five of the 10 manufacturing divisions expanded in December, with the petroleum, chemical, rubber and plastic products division, and wood, paper, printing and publishing becoming the largest positive contributors.

Stats SA’s director of industry statistics, Nicolai Claassen, said manufacturers in petroleum, chemical, rubber and plastic products recorded an increase of 5.3% year-on-year while wood, paper, printing and publishing registered a rise of 2.7%.

Claassen said the largest downward contributions came from manufacture of motor vehicles parts and accessories, other chemical products, and textiles, clothing, leather and footwear.

“Food and beverages, metals and machinery products, and furniture and other manufacturing also recorded positive results,” he said.

“The communication and professional equipment division recorded the largest decline in production, decreasing by 10.6% year-on-year.”

On a monthly basis, factory output shrank 1.7% compared with November, following month-on-month changes of 1.2% in November and 0.0% in October.

Measured on a quarter-on-quarter seasonally adjusted basis, manufacturing output was largely flat at 0.1% compared with the third quarter of 2023, and is expected to make a negligible contribution to the quarter’s overall GDP reading.

FNB senior economist Thanda Sithole said this suggested that the economy would likely avoid a technical recession in the final quarter of last year after contracting by 0.2% in the third quarter.

However, Sithole said activity would remain depressed in the first half of 2024 after remaining virtually stagnant in the whole of 2023.

“Production is expected to remain lacklustre in the near term, partly influenced by subdued domestic consumer spending and sluggish external demand, alongside ongoing infrastructure hurdles spanning energy, roads, ports, and rail,” Sithole said.

“However, there is potential for manufacturers to increase production beyond the near term as demand conditions improve and infrastructure capacity expands.”

The December 2023 manufacturing production and sales release concluded the results for the calendar year.

For the whole of 2023, manufacturing activity expanded by 0.4% compared with 2022, with metals and machinery products, the automotive division, and wood, paper, printing and publishing driving much of the upward momentum.

The performance of South Africa’s manufacturing activity was not an outlier in 2023 as the global economy remained weak, affecting demand, while geopolitical tension also impacted on supply and delivery times.

Investec economist Lara Hodes cited the recent JPMorgan Global Manufacturing PMI Survey, which showed that the global manufacturing sector ended 2023 on a lacklustre footing.

The survey said December saw production decline for the seventh successive month as intakes of new business suffered a further contraction.

“While load shedding eased somewhat in December, the electricity supply predicament remains a significant challenge for the energy-intensive manufacturing sector and economy as a whole,” Hodes said.

“Moreover, the still subdued global manufacturing environment continues to undermine export potential.”