Manufacturing output decreased by 3.4% year-on-year in October, predominantly owing to exporting industries shaving a combined 3.4 percentage points from the headline figure.
Statistics South Africa reports that the largest contractions for October were recorded in the petroleum, chemical products, rubber and plastic industries at -6.8% and contributing -1.5 percentage points, followed by basic iron and steel, nonferrous metal products and machinery contracting by 5% and contributing -0.9 of a percentage point.
The motor vehicles, parts and accessories industry contracted by 6.8% and contributed -0.6 of a percentage point to overall output, while wood and wood products, publishing and printing contracted by 3.4% and contributed -0.4 of a percentage point.
Seasonally adjusted manufacturing production increased by 2.6% in October, compared with September. This followed month-on-month changes of 2.9% in September and 3.6% in August.
Moreover, seasonally adjusted manufacturing production increased by 17.2% in the three months ended October, compared with the previous three months.
All ten manufacturing divisions reported positive growth rates over this period, led by food and beverages with 12.5% and contributing 4.1 percentage points.
Nedbank says the rate of recovery has been normalising, with the troughs and statistical rebounds seemingly levelling out as operations return to some semblance of normality.
The bank adds that manufacturing production has been gradually recovering since May, down by 12.8% for the ten months to October.
“Recent global purchasing managers indices (PMIs), however, point to a significant slowdown in activity, with most advanced economies in contraction territory.
“On the domestic front, the Absa PMI for November has also declined from record highs but remains in expansion. Output is expected edge higher at a slower pace during the remainder of 2020 and throughout 2021, provided South Africa avoids a second strict lockdown and the world economy maintains normal trading operations,” Nedbank comments.
Steel and Engineering Industries Federation of Southern Africa (Seifsa) says the latest dip in the manufacturing production growth rate shows that economic recovery will be bumpy under Covid-19 restrictions.
Seifsa chief economist Chifipa Mhango did point out, however, that it was encouraging to see manufactured product sales continuing to rise, reaching R221-billion in October from R201-billion in September. Of interest to Seifsa was the continued uptick in basic metals sales from R45-billion to R48-billion over the same period.
However, within the metals and engineering (M&E) industry, sales of electrical machinery showed a year-on-year growth of 5.4%.
Mhango continues that there are many factors at play – capacity utilisation across the entire manufacturing industry remains low at around 71%, which means the industry is still producing less than potential production.
"This is mainly owing to the restrictive lockdown measures that the industry was – and still is – operating under at plant level. Coupled with this situation is unsustained demand patterns in both the domestic and international markets, with key markets such as Europe moving back to stricter Covid-19 lockdown measures, thus disrupting supply chains and industrial activities."
He notes that the M&E sector in South Africa was heavily reliant on the performance of the construction industry. He says that although other recent data suggested a pick-up in construction and building material sales from May to October, the upward trend had slowed. Construction and building material sales declined to R11.8-billion in October , from R13.1-billion in the previous month.
Mhango explains historical patterns had demonstrated that during times of massive infrastructure investment into the South African economy, such as 2002 to 2010 when the construction sector showed growth of above 10%, manufacturing production is correspondingly higher.
Between 2002-2010, capacity utilization in the sector was above 85%, while it was over 90% in the M&E industry. He says while the economy has yet to return to those levels, it was good to see a positive month-on-month growth in manufacturing production and an easing decline in the year-on-year percentage change.
Further, Mhango remarks that several factors were key to recovery in the manufacturing industry, including a well-managed approach to Covid-19 restrictions to ensure that we do not return to level-five-type lockdown measures, a stable labour market environment, a stable monetary policy, low import penetration of manufactured goods into the local economy, stable and low-cost electricity supply, increased investment into the sector, and the steady implementation of the Government’s economic stimulant recovery plan announced in October .