Manufacturing output in December has surprised on the upside, rebounding to a year-on-year growth of 2.5%, up from the 0.4% year-on-year increase recorded in November, the latest manufacturing report from Statistics South Africa (Stats SA) showed this week.

The agency reported that the increase arose from the good performance of the food and beverage sector, with a 5% increase and a contribution of 1.3 percentage points, the basic iron and steel, nonferrous metal products, metal products and machinery sector, with an increase of 2.5% – contributing 0.5 of a percentage point – and the petroleum, chemical products, rubber and plastic products sector, with a 1.7% increase, contributing 0.5 of a percentage point.

On a quarterly basis, manufacturing production growth in the fourth quarter was stronger - up 1.4% year-on-year - than the 0.8% year-on-year growth recorded in the third quarter.

“This partly reflects a rebound effect of the eight-week-long strike action that disrupted production in the vehicle manufacturing sector during the third quarter,” Investec economist Kamilla Kaplan said this week.

Seasonally adjusted manufacturing production rose by 0.4% in December, compared with the month-on-month 0.6% decline in growth in November.

On a quarterly basis, seasonally adjusted output increased by 2.4% during the fourth quarter of 2013, compared with the third quarter contraction of 2.1%.

Five of the ten manufacturing divisions reported positive growth rates over this period, with the largest positive contributions emerging from motor vehicles, parts and accessories and other transport equipment, with an increase of 26.9%, contributing 1.8 percentage points, and petroleum, chemical products, rubber and plastic products, with a 5.1% increase, contributing 1.3 percentage points.

The manufacturing sector’s output for 2013 had registered a modest growth of 1.3% – a deceleration from the 2.4% increase achieved in 2012.

Stats SA reported that higher production in seven of the ten manufacturing divisions was recorded during the year.

The food and beverage sector recorded growth of 3.4%, contributing 0.8 of a percentage point, while the basic iron and steel, nonferrous metal products, metal products and machinery sector, with a 2% increase, contributed 0.4 of a percentage point. Further, the petroleum, chemical products, rubber and plastic products sector reported 1.2% growth and contributed 0.3 percentage points.

“This weaker growth is reflective of sluggish aggregate demand conditions that prevailed in 2013, coupled with escalating operating costs and relatively strenuous labour relations,” Kaplan commented.

“Today's manufacturing production still reflects subdued underlying conditions. The moderate pace set towards the end of last year is expected to continue into the first half of this year, with the risk still tilted to the downside given significant global challenges, weak domestic confidence, increasingly volatile financial markets, the higher cost of credit and the upcoming local elections,” Nedbank’s Economic Unit commented this week.

Slowing domestic consumption demand, in conjunction with precarious foreign demand from Europe and China, would ensure the outlook for the year ahead remained fragile.

Nedbank believed that output by the manufacturing sector was likely to improve moderately in 2014, on the back of a weaker rand and “some acceleration” in global demand, but the sector was set to remain constrained by uncertain and insufficient power supply, other infrastructure constraints and rising production costs.

“Simultaneously, manufacturers are likely to continue experiencing significant input cost pressures on the back of previous rand weakness and higher utility and labour costs,” Investec added.

Elevated input costs, weak demand, stiff competition and instability in labour relations were some of the factors that characterised the manufacturing environment, with the Manufacturing Circle’s (ManCirc) fourth-quarter manufacturing survey showing that business confidence in the manufacturing sector was mostly fragile during the quarter.

The 2013 fourth-quarter manufacturing survey said the majority of surveyed firms expected either a “fragile-to-stable” environment over the short-term on the back of industrial actions, sociopolitical instability and a weak rand-induced rise in input costs, besides others.

Seasonal factors, depressed domestic-consumption spending and increased competitiveness resulted in a lacklustre performance of manufacturing sales during the quarter under review, added ManCirc.