Manufacturing production increased by 0.9% year-on-year in September, while seasonally adjusted output was 2.2% higher month-on-month, Statistics South Africa (Stats SA) reported on Tuesday.
The higher factory output, which BNP Paribas Cadiz Securities said was above its own more optimistic estimates for flat domestic manufacturing production, came on the back of increased production in the petroleum, chemical products, rubber and plastic products and food and beverages sectors, which contributed 1.2 percentage points and 0.5 of a percentage point respectively.
However, Stats SA highlighted that large negative year-on-year contributions were made by the motor vehicles, parts and accessories and other transport equipment sector, and the nonferrous metal products, metal products and machinery sector, which contributed -0.7 percentage points each.
On a seasonally adjusted basis, manufacturing production increased by 1.4% in the third quarter of this year, compared with the second quarter. Eight of the ten manufacturing divisions had reported positive growth rates over this period.
The main contributor to the 1.4% increase was the petroleum, chemical products, rubber and plastic products division.
“As we had anticipated, momentum growth in manufacturing production bounced back into positive quarterly annualised growth territory in the third quarter, rising 5.8% on a quarter-on-quarter seasonally adjusted and annualised basis in September – though, admittedly this needs to be seen in context of the low base production was coming off after the manufacturing sector was the largest contributor to gross domestic product (GDP) growth, slipping into negative quarter-on-quarter growth territory in the second quarter.
“Weak purchasing managers’ indices still point to heavily constrained domestic conditions. Nevertheless, a positive contribution from manufacturing production supports our view that the economy managed to avoid slipping into a technical recession,” PNB Paribas economist Jeffrey Schultz said in a statement.
Despite the manufacturing uptick, Investec economist Annabel Bishop’s outlook remained more muted.
“We continue to expect GDP growth of around 1% quarter-on-quarter seasonally adjusted annualised (qqsaa) in the third quarter, and around 2.2% qqsaa in the fourth quarter, yielding the weak outcome of 1.4% year-on-year for GDP.
“While South Africa is likely to narrowly avoid a recession in 2015, the economy is not strong enough to stomach a November interest rate hike,” she asserted.
Should a November hike in the repo rate not occur, GDP growth would likely be 1.7% year-on-year in 2016.
“With higher interest rates and higher taxes, growth will likely be weaker. The longer economic growth in the country remains below 2%, the more likely it will see its credit ratings downgraded,” Bishop added.