South African manufacturing production contracted by a larger-than-expected 3.7% year-on-year in May, pointing to an industry under a great deal of strain, BNP Paribas economist Jeffrey Schultz said on Thursday following the release of the May manufacturing production and sales data by Statistics South Africa (Stats SA).

Stats SA said that on a year-on-year basis the largest contributors to the 3.7% decline were motor vehicles, parts and accessories, which fell by 15.9% and subtracted 1.6 percentage points, and basic iron and steel and nonferrous metal products which showed a 6.8% decline.

Food and beverages production also slipped 4.3% in May and subtracted a full percentage point from total manufacturing production growth in May.

On a seasonally adjusted month-on-month basis production growth slipped 3.3% in May, driven by production declines in eight of the ten subindices tracked by Stats SA.

The largest negative contributors were food and beverages, basic iron and steel and nonferrous metals, and motor vehicles parts and accessories production, which declined by 7.4%, 3.8% and 5.7% month-on-month respectively. 

The only positive contributor to month-on-month production came from petroleum, chemical, rubber and plastics production, which rose 2.4% in May.

Meanwhile, on a quarter-on-quarter seasonally adjusted and yearly basis, manufacturing production growth contracted by 8% in May from a negative 7.4% in April and was in sync with the recent trends in the Purchasing Managers Index leading indicator which had slipped to its lowest level since the 2009 global financial crisis, Schultz said.

Meanwhile, Investec economist Kamilla Kaplan said that, while a multitude of factors were responsible for the particularly weak performance of the manufacturing sector so far this year, the five-month platinum sector wage strike, was at the forefront, having suppressed manufacturing production owing to the various linkages to the mining sector.

“Operations at the platinum mines are only expected to fully recover to prestrike levels by the end of the third quarter, and as such, the effects of the strike on the manufacturing sector will linger,” she said, adding that the effects of the strike had been exacerbated by the weakening momentum in domestic demand growth, the slow pick up in export growth and insufficient electricity capacity.

He added that, while the poor production performance within the motor vehicles, parts and accessories subsectors had to be seen in the context of a large vehicle manufacturing plant being retooled locally, the industrial action which had now kicked off in the related steel and manufacturing sector suggested further downside risk to this side of the economy should a speedy resolution not be found.

Kaplan noted that the current strike held the threat of to preventing a recovery in manufacturing sector production during the third quarter, stating that while some manufacturing companies had built up inventories in anticipation of the strike these would be insufficient if the strike was of a prolonged nature.

Nedbank’s economic unit stated that the performance of the manufacturing sector would remain lackluster as long as domestic conditions remained poor.

“Conditions deteriorated in the second quarter and the current labour strike in the steel and engineering sector will worsen them further. However, the weaker rand and stronger global demand are still expected to lift production and exports once the domestic position stabilises,” Nedbank said.