Photo by: Duane Daws
Manufacturing production increased by 1.4% year-on-year in February, Statistics South Africa (Stats SA) said on Thursday.
The main contributors to this increase were petroleum, chemical products, rubber and plastic products – which contributed 1 percentage point – food and beverages with 0.8 of a percentage point and basic iron and steel, nonferrous metal products, metal products and machinery, contributing 0.3 of a percentage point.
However, banking group Nedbank said the February production fell short of market expectations.
“The softer [than expected] annual increase was mainly owing to slower production growth in most major industries and lower output in the broader wood, paper, publishing and printing, as well as motor vehicles, parts, accessories and other transport equipment industries,” Nedbank explained.
Investec added that growth in February was also not broad based, which highlighted the underlying weaknesses in the production side of the economy.
The bank pointed out that only the petroleum sector registered quicker growth at 4.4% year-on-year, compared with 1.6% year-on-year previously, while growth contracted in the remaining main subsectors.
Further, seasonally adjusted manufacturing production for the three months ended February increased by 2.3% compared with the previous three months, with six of the ten manufacturing divisions having reported positive growth rates over this period.
The largest positive contributions to this increase were made by the motor vehicles, parts and accessories and other transport equipment; petroleum, chemical products, rubber and plastic products; and food and beverage divisions.
Investec noted that this growth was, however, slower than the 3.4% year-on-year increase in January.
“Moreover, advance indications provided by the manufacturing Purchasing Managers’ Index (PMI) suggest that activity in the sector was relatively subdued at the start of the year.
“The PMI averaged 50.6 in the first three months of 2014, decreasing from an average of 51 in the fourth quarter of 2013 and 52.7 in 2013’s third quarter. This further suggests that the manufacturing sector’s contribution to gross domestic product (GDP) in the first quarter of 2014 will be smaller than that of the fourth quarter of 2013,” Investec said.
Meanwhile, seasonally adjusted sales of manufacturing products increased by 6.9% in the three months ended February, Stats SA said.
The manufacturing divisions that were mainly responsible for the increase in total manufacturing sales were motor vehicles, parts and accessories and other transport equipment and petroleum, chemical products, rubber and plastic products.
Looking ahead, Nedbank said trading conditions were still expected to improve as the year progressed.
“While output is likely to disappoint in March owing to the power restrictions placed on heavy energy users, the weaker rand and stronger global demand are still expected to lift production and exports, especially in the second half of the year,” Nedbank said.
The bank added that growth rates for 2014 would also be enhanced by the low base created in the strike-inflicted second half of 2013.
“However, considerable downside risks remain given rising production costs, uncertain and insufficient power supply, other infrastructure constraints and strained relationships with labour,” Nedbank noted.
Investec added that the recent revision to South Africa’s 2014 GDP growth by the International Monetary Fund to 2.3%, from a previous 2.8%, highlighted that downside risks were pervasive.
“The domestic economic growth environment merits a measured approach to monetary policy normalisation and we expect the South African Reserve Bank to only implement one more interest rate hike this year of 50 basis points in July,” Investec said.