SA manufacturing output up 2% in Dec, below expectations

7th February 2013

By: Idéle Esterhuizen

  

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Yearly growth in South Africa’s manufacturing production fell to 2% in December 2012 from 3.7% in the previous month and was below market expectations of 2.9%.

Although subdued, seven of the ten manufacturing divisions, including the petroleum, chemical products, rubber and plastic products division; the food and beverages division; the motor vehicles, parts and accessories and other transport equipment division; as well as the wood products, paper, publishing and printing division, recorded higher output during the month.

Manufacturing production was also 2% higher in December 2012 than output recorded in December 2011, boosted by higher production in four of the ten manufacturing divisions, especially the petroleum, chemical products, rubber and plastic products division.

Meanwhile, seasonally adjusted manufacturing production in the fourth quarter of 2012 increased by 1.6% to 106.3 percentage points, compared with the third quarter of 2012, as six of the ten manufacturing divisions reported positive growth rates over this period. Again, the biggest contribution was made by the petroleum, chemical products, rubber and plastic products division.

The seasonally adjusted sales of manufactured products were also mainly boosted by production growth in the petroleum, chemical products, rubber and plastic products division and rose by 5% to R393.7-billion in the fourth quarter of 2012, compared with R374.87-billion in the third quarter.

However, this was partially offset by lower sales recorded for the motor vehicles, parts and accessories and ‘other’ transport equipment division, which decreased by 7% to R44.41-billion.

Banking firm Nedbank’s Economic Unit said in a note to clients that, while a moderate recovery in manufacturing production would continue in 2013, no significant upward momentum was expected.

This was owing to local and international economic conditions still being subjected to the impact of a weak eurozone, which would continue to impact negatively on the large export-orientated industries.

Production of goods for the local consumer markets would also be depressed owing to moderate consumer spending.

The recent recovery in infrastructure spending by the public sector was likely to support the industries producing capital goods and other inputs for local projects. However, the growth rate would be contained by slower capital expenditure by the private sector in response to the bleaker economic environment both locally and internationally.

Overall, economic activity generally remained sluggish, while upside risks to inflation have increased as a result of the weaker rand.

“We believe this will persuade the Monetary Policy Committee to keep monetary policy neutral over an extended period, with interest rates remaining unchanged for most of 2013. A reversal in policy easing is likely only late in the year or even in 2014,” the Nedbank economic unit stated.

Absa Capital macroeconomist Ilke van Zyl also expected South Africa’s manufacturing production to improve further in 2013, barring any significant labour market unrest flaring up.

“Export demand is rising and, as the rand remains at weaker levels, demand for South Africa’s manufacturing products should remain supported.

“A third of local manufactured products are destined for the export market and with about 90% of total African imports from South Africa classified as manufactured goods, we should continue to see a growing manufacturing sector as the continent’s economy is expected to grow at around 5% to 6% in 2013,” she stated.

Van Zyl further indicated that the latest manufacturing production results had no bearing on Absa Capital’s interest rate view.

“The benchmark interest rate will remain unchanged until late 2014, as the South African Reserve Bank attempts to balance rising inflationary risks with lower growth.

“Manufacturing production’s healthy performance during the fourth quarter of 2012 will add about one percentage point to gross domestic product growth, up from 0.2 percentage points in the third quarter of 2012, which supports our view that further monetary loosening is not necessary at this time,” she said.

Investec economist Annabel Bishop commented that the outlook for the country’s labour force also looked bleak.

The December Purchasing Managers Index (PMI) reading was largely influenced by the 7.3 points drop in December, which indicated job losses, to 44.7, while business activity climbed 1.4 points to 47.3.

The January PMI displayed a similar result in terms of a further marked drop in the employment reading, indicating further job losses and an increase in the business activity index. Bishop said companies would not likely employ more workers if there were elevated levels of uncertainty about, and business-unfriendly changes in domestic economic and labour policy.

Meanwhile, workers proved too expensive in a number of cases compared with mechanisation and were losing their jobs, with the increased rigidity in labour laws negatively impacting on labour prospects and so economic growth.

“In particular, the new minimum agricultural wage of R105 a month without a concomitant rise in the price farms can sell their produce for, leaves little option but for some businesses to retrench workers to restore profitability, and so rely on increased mechanisation instead, if they can.

“Government’s short-sighted policies in this regard are contributing to lower levels of employment, higher levels of long-term unemployment and so more discouraged job seekers,” Bishop stated.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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