While yearly manufacturing production grew by 0.5% in June, from a 3.8% decline in May, manufacturing sector performance was likely to continue being negatively affected by the earlier strike in the steel and engineering sector, Nedbank’s economic unit said on Thursday.
Statistics South Africa (Stats SA) said that the 0.5% year-on-year increase was mainly driven by higher production in the petroleum, chemical products, rubber and plastic products segment, which was up 3.9%, contributing 0.9 of a percentage point, while food and beverage production increased 3.2% and added 0.7 of a percentage point.
The motor vehicles, parts and accessories and other transport equipment division was a significant negative contributor, having declined 11.3%, subtracting 1.1 percentage points.
Meanwhile, on a seasonally adjusted basis, manufacturing production was up by 1.4% month-on-month but down 0.4% quarter-on-quarter in the second quarter of 2014, Stats SA revealed.
The quarterly decline was a result of lower production in the motor vehicles, parts and accessories and other transport equipment, as well as the petroleum, chemical products, rubber and plastic products categories, which declined by 6.1% and 1.7% respectively.
Aside from these segments, declines were also recorded for textiles, clothing, leather and footwear, glass and nonmetallic mineral products and furniture and other manufacturing division, which showed reductions of 3.7%, 4.7% and 3.6% respectively.
Of the ten manufacturing sectors, six recorded declines on a quarterly basis.
Nedbank said the improved June manufacturing figures supported its forecast of a modest 1.4% annualised expansion in gross domestic product during the second quarter of the year, following the 0.6% contraction of the first quarter.
“However, despite this, the production side of the economy remains weak. Unfortunately, inflation has been above the Reserve Bank’s 6% upper target since March this year and is likely to remain above 6% well into next year. The Monetary Policy Committee (MPC) will have to balance these two factors when deciding on interest rates.
“The bank has reiterated that interest rates are in a rising cycle and that, at some point, they will have to be ‘normalised’. The implication is that the bank will continue to talk tough but to act as moderately as possible given the weak economy.
“The MPC will therefore probably pause in September before hiking by another 0.25 percentage points in November,” Nedbank statd.
It added that, from the Kagiso Purchasing Managers’ Index (PMI) numbers, it seemed as if July manufacturing production growth would still remain lackluster as the PMI figure came in at 45.9 for July from 46.6 in June.
“The Kagiso PMI numbers have been below the 50-point mark that separates expansion from contraction in the manufacturing sector for four consecutive months, which does not bode well for the sector,” Nedbank said, adding that the domestic climate could, however, be mitigated by increased production stemming from the weaker rand boosting exports and production.