Bad news for economy

UNEXPECTED: MANUFACTURING OUTPUT FALLS BY 1.7% IN DECEMBER

Crisis at harbours among reasons for shocking contraction.

There was a shocking fall in manufacturing output in December last year that was larger than expected, while the Absa purchasing managers’ index (PMI) that measures business conditions also declined sharply in January.

According to Statistics SA, seasonally adjusted manufacturing production fell sharply by 1.7% in December compared to the 1.2% month-on-month increase recorded in November – which is not good news for the economy.

The sharp decline in factory output means production rose by a mere 0.1% in the fourth quarter compared to the third quarter, suggesting the manufacturing sector hardly grew during this time.

Total manufacturing output was up by 0.4% in 2023, following the 0.3% contraction recorded in 2022, pointing to weak domestic demand for manufactured products. Favourable base effects meant that production was up 0.7% in December compared to December 2022.

Jee-A van der Linde, senior economist at Oxford Economics Africa, said the outcome was below the consensus forecasts of 0.5% month-on-month and 2.5% year-on-year after the industry was adversely affected by a prolonged strike at Transnet in the fourth quarter of 2022.

Total manufacturing output increased by 0.4% in 2023, following the 0.3% contraction in 2022.

The largest positive contributors to annual increase were:

Petroleum, chemical products, rubber and plastic products that increased by 5.3% and contributed 1.1 percentage points.

Wood and wood products, paper, publishing and printing that increased by 2.7% and contributed 0.3 percentage points

Food and beverages that increased by 0.9% and contributed 0.3 percentage points.

December’s 1.7% month-onmonth decline marks the deepest contraction since the decline of 5.3% recorded in October 2022.

Van der Linde said seasonally adjusted output inched higher by 0.1% quarter-on-quarter during the fourth quarter. Statistics SA noted that six of the 10 manufacturing divisions reported positive growth rates over this period.

“The larger than expected drop in December’s seasonally adjusted manufacturing production offsets the 1.2% monthon-month increase in November and implies a tiny positive contribution to total gross domestic product (GDP) at the end of 2023. Overall, underlying local demand for manufactured goods is weak.”

In addition, said Van der Linde, Absa PMI dropped sharply to 43.6 index points in January, down from 50.9 in December 2023, indicating a poor start to the year.

“Looking at the two most important sub-indices, the business activity index plunged to 37.1 most recently and the new sales orders index fell to 37.2.”

The January survey noted that the deterioration comes despite less intense load shedding relative to most of 2023, and is most probably linked to a sharp decline in demand, Van der Linde said.

“A lack of materials required in the production process may also have hampered output. Respondents noted weaker demand than usual, with export orders stuck below 50 for a third straight month.”

The inventories index fell back to 37.7 in January, reaching the lowest level since mid-2020, and Van der Linde said this can be attributed to harbour crisis preventing imported stocks from reaching manufacturers. –