Weak demand likely to slow production in the near term
CAPE TOWN – Manufacturing output decelerated slower than expected in September, but weak demand is likely to continue to depress near-term factory production, economists said on Monday.
Investec economists Lara Hodes said manufacturing activity eased to -2.6 percent year on year in September from -11.1 percent in August.
Hodes said the decline was stronger than the -7.7 percent year-on-year median estimate of the fall in production.
Food and beverage manufacturing activity grew by 4.2 percent year on year following five consecutive months of declines. It added 1.2 percent to the top line reading, on account of its substantial and revised 27.14 percent weighting in the manufacturing basket.
Textiles, clothing, leather and footwear production also edged up, rising by 1.9 percent year on year following August’s -9.4 percent year on year slide.
Statistics South Africa (StatsSA) figures showed the largest negative contributions were by the iron and steel sector (-7.5 percent), motor vehicle and other transport equipment (-12.7 percent), wood, paper, publishing and printing (-7.7 percent), and petroleum, chemicals and plastic products (-1.9 percent).
Hodes said the all-round improved performance is reflective of advance indications provided by the results of the Absa manufacturing Purchasing Managers’ Index (PMI) survey.
The September PMI had signalled a sustained monthly improvement in manufacturing business conditions, in a continued recovery from the sharp downturn in the second quarter.
Production capacity utilisation had also increased notably from levels of the second quarter, but remained below the level in the same period last year.
StatsSA said the manufacturing capacity utilisation of large companies was 72.9 percent in August, compared with 80.3 percent in the same period last year.
Nedbank’s economic research unit said the recovery in manufacturing output seen thus far from April’s trough was expected to continue for the remainder of the year.
Third-quarter seasonally adjusted manufacturing production increased by 32.9 percent compared with the second quarter of 2020, with all 10 manufacturing divisions reporting positive growth rates over this period, StatsSA data showed.