South Africa’s manufacturing output is predicted to trend lower as the sector grapples with sluggish consumer demand and a hesitancy in investment, despite a positive shift in the country’s electricity supply situation.
Data from Statistics South Africa (StatsSA) yesterday showed that manufacturing production declined by 1.2% year-on-year in August following a downwardly revised 1.6% rise in July.
This marks a troubling continuation of the challenges facing this crucial sector of the economy.
StatsSA’s director of industry statistics, Nicolai Claassen, said five of the 10 manufacturing divisions recorded a decline in production, with the automotive division - a significant pillar of South Africa’s manufacturing landscape - and metals and machinery the biggest drags on overall growth.
“The automotive division recorded a 16.1% year-on-year decline, mainly driven lower by parts and accessories and motor vehicles,” Claassen said.
“The metals and machinery division recorded a 5.4% year-on-year decrease. Textiles and clothing, electrical machinery and wooden paper publishing also registered a weaker month.”
According to StatsSA, five divisions were stronger in August, including food and beverages, communication and professional equipment, furniture and other manufacturing, petroleum, chemical, rubber and plastic products and glass and non-metallic products.
On a month-on-month basis, seasonally adjusted manufacturing production decreased by 0.6% in August following a month-on-month increase of 1.6% in July.
Seasonally adjusted manufacturing production increased by 0.1% in the three months ended August compared with the previous three months.
FNB senior economist Thanda Sithole said total manufacturing output was down 0.5% year-to-date (January to August), reflecting challenging demand conditions due to weak consumer fundamentals and broad-based declines in domestic private sector fixed investment.
Sithole said the decline in monthly output was reflected in the manufacturing Purchasing Managers’ Index (PMI) business activity index, which fell deep into contraction, reaching 38.9 points in August.
However, Sithole said this index rebounded to 50.7 points in September, indicating a potential recovery in monthly output.
“Although stable, external demand remains challenging, weighing on manufactured goods exports. We anticipate a modest yet uneven recovery in the near term as demand conditions improve amid easing cost-of-living pressures,” Sithole said.
“The manufacturing PMI expected business conditions index rose to 70.8 points in September from 61.3 in August, suggesting that manufacturers foresee improving operating conditions.”
However, Investec economist Lara Hodes remained hopeful that manufacturing output will tick up from September as economic indicators were pointing to a rebound in the sector.
Hodes said the August’s dip in output was in line with the movement in the ABSA PMI, which moved back into contractionary territory in August, with a reading of 43.6 from 52.4 previously.
According to the PMI, both the business activity and new sales orders’ indices fell considerably during the month, following “a significant improvement in July when some sales orders that had been on hold due to political uncertainty started to come through.”
“Favourably, however, advance indications provided by September’s PMI suggest that manufacturing activity picked up in September,” Hodes said.
“Specifically, the headline PMI moved back into expansionary territory, climbing 9.2 points to 52.8. Both the business activity and new sales orders indices increased, while the index measuring expected business conditions (in six months’ time) logged the highest reading since January 2021, “indicating strong optimism about improving business conditions.”
BUSINESS REPORT