October manufacturing output narrows 2.1% y/y

8th December 2015 By: Natalie Greve - Creamer Media Contributing Editor Online

October manufacturing output narrows 2.1% y/y

Photo by: Bloomberg

Manufacturing production contracted by 2.1% year-on-year, or 1.7% month-on-month, in October, with the largest negative contribution made by basic iron and steel, nonferrous metal products, metal products and machinery, which slumped 10.3% year-on-year, as well as the motor vehicles, parts and accessories and other transport equipment sectors, which posted a 6.2% year-on-year contraction, Statistics South Africa said on Tuesday.

This as electricity production fell by 3.2% year-on-year in October and mining production by 4.6% over the 12 months, yielding a quarter-on-quarter contraction in industrial production of 0.9% for the three months to October 31.

The narrowing in output was further helped by a contraction in the wood and wood products industries, which narrowed output by 2.5% from the same month in the prior year.

“Manufacturers of wood and wood products indicate that the biggest reason for the weak performance has been low domestic and global demand, accounting for 61% of the underutilisation of production.

“This was also the case for the production of iron and steel, but only 32% for production of motor vehicle parts and accessories. The latter was more heavily influenced by downtime owing to maintenance, changes in productivity and seasonal factors,” Investec said in an analysis of the statistics on Tuesday.

On the upside, the largest positive contribution was made by the food and beverages sector, which saw a 3.9% uptick year-on-year.

Meanwhile, seasonally adjusted manufacturing production decreased by 1.7% in October compared with September. This followed month-on-month changes of 2.4% in September and 0.4% in August.

In the three months ended October, seasonally adjusted manufacturing production increased by 1.6% compared with the previous three months, with eight of the ten manufacturing divisions reporting positive growth rates over this period.

The main contributors to the 1.6% increase were the petroleum, chemical products, rubber and plastic products division and the food and beverages division.

Looking ahead, Investec said it expected gross domestic product (GDP) growth of 1.3% year-on-year in 2015, with GDP growth likely to be below 1.5% in 2016 on higher interest rates and higher taxes.

“The longer economic growth in South Africa remains below 2%, the more likely it will see its credit ratings downgraded further, with Standard & Poor’s recently saying South Africa is ‘sleepwalking into a downgrade’ of its sovereign credit ratings,” the bank cautioned.

BNP Paribas Cadiz Securities economist Jeffrey Schultz commented that falling industrial commodity prices, weak demand and domestic structural constraints, such as electricity supply and labour relations concerns, would likely limit the scope for a meaningful turnaround in the manufacturing and mining sectors in 2016.

“Collectively, these present a large degree of downside risk to South Africa’s near- to medium-term growth outlook,” he said.