Manufacturing declines at slower pace in October

10th December 2019

By: Marleny Arnoldi

Deputy Editor Online

     

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Manufacturing output continued to decrease in October, albeit at a slower pace of 0.8% year-on-year, following a 2.4% year-on-year dip in September.

The sector recorded growth of 2.7% on a seasonally adjusted month-on-month basis, from -2.4% in September.

“Although disappointing, the October print was better than our and the market’s forecast of -1.8% and -2.7%, respectively,” financial services provider Nedbank states.

Financial services provider Investec says a disaggregation of the underlying data suggests that the decline in October was broad based, with seven out of the ten manufacturing divisions suffering a contraction.

Lower manufacturing output as led by the wood, paper, publishing and printing segment, which fell by 6.1% year-on-year, detracted 0.7% from the topline reading.

This was offset by a 4% increase in output from the food and beverages segment, which added 1.1% to the headline outcome.

The basic iron and steel segment had 2.2% lower output, while textiles reported a 9.6% lower output. Glass and non-metallic mineral production showed a 10.7% decrease in output for October.

Investec notes that manufacturers still face a myriad of challenges, with electricity supply disruptions and elevated administered prices weighing heavily on operational performance.

Additionally, local demand remains muted, underpinned by a highly constrained consumer, while strained global trade dynamics undermine South Africa’s export potential.

Nedbank says the outlook for manufacturing production remains subdued against the backdrop of uncertain global growth, relatively flat commodity prices and constrained domestic consumer demand.

The ABSA Purchasing Managers Index remained below the 50-point level for the fourth consecutive month in November and, coupled with no real improvement in the Rand Merchant Bank/Bureau for Economic Research business confidence index, is suggestive of weak manufacturing activity in the months to come.

The current state of load-shedding will further restrict recovery in the sector in the short to medium term.

Nedbank explains that anticipated growth for the year remains weak as uncertainty in the local and global economic environment persists. With the absence of any demand pressure on prices, the inflation outlook remains relatively benign.

“Our view is that the Reserve Bank’s Monetary Policy Committee will probably remain hesitant to ease monetary policy in the face of downside risks to the local currency given the country’s deteriorating fiscal outlook, the rising probability of a Moody’s sovereign risk ratings downgrade to junk status and an uncertain global environment.”

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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