Manufacturing production dropped precipitously in February, declining 3.6 percent year-on-year (the worst point since July 2014, which was strike related) and 0.4 percent lower month-on-month.
This was in sharp contrast to January’s positive, albeit meagre growth of 0.4 percent year-on-year.
The headline number was dragged lower by a 6.6 percent year-on-year contraction in petroleum and chemical production and a 3.6 percent fall amongst food and beverage manufacturers, both of which accounted for negative 2.5 percent of the headline number.
In fact, 8 of the 9 manufacturing categories contracted, with only motor vehicle parts and transport equipment rising 0.8 percent year-on-year. While the data reflects broad domestic economic weakness, we had anticipated that improving global growth and recent buoyant PMI readings would have offset softer local demand, particularly as far as export manufacturers were concerned.
This was not to be and without a significant turnaround in March, suggests the sector will contract in the first quarter.
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While there is still a good amount of data outstanding (March mining, manufacturing and retail trade), our initial forecasts suggest the possibility of a technical recession – two consecutive quarters of negative gross domestic product growth – in the first quarter after a contraction of 0.3 percent year-on-year in the fourth quarter of last year.
A first quarter recession would not have been the result of the recent cabinet reshuffle or the ratings downgrade, which suggests that there may be further contractions in the coming quarters given our expectations of lower business and consumer confidence in light of heightened political uncertainty.
Jason Muscat is FNB’s Senior Industry Economist. His opinions do not necessarily reflect those of Independent Media.
BUSINESS REPORT ONLINE