Sur­prise de­cline in out­put data

Man­u­fac­tur­ing out­put drops

The Star Early Edition - - BUSINESS REPORT - Kabelo Khu­malo

IN THE SEC­OND blow for South Africa’s econ­omy this week, Sta­tis­tics SA yes­ter­day said that the coun­try’s man­u­fac­tur­ing out­put fell the most since July 2014 af­ter it con­tracted by 4.1 per­cent year-onyear in April, de­spite an in­crease on a monthly ba­sis.

This was worse than the 1.6 per­cent de­cline econ­o­mists and an­a­lysts had pre­dicted.

Ac­cord­ing to Stats SA, the re­ported an­nual de­cline in pro­duc­tion in April was due to lower pro­duc­tion in eight of the ten man­u­fac­tur­ing di­vi­sions, while pos­i­tive con­tri­bu­tions were only recorded for food & bev­er­ages and ra­dio, tele­vi­sion and com­mu­ni­ca­tion sec­tors.

The largest sin­gle con­trib­u­tor to the sur­pris­ingly poor re­sult was the sharp con­trac­tion of pro­duc­tion in the au­to­mo­tive sec­tor, which fell by 17.7 per­cent year-on-year, which cut 1.4 per­cent off of head­line growth.

Pro­duc­tion in the glass and non-metal­lic min­eral prod­ucts fell 10.9 per­cent, while elec­tri­cal machin­ery shed 16.8 per­cent in the pe­riod.

Fur­ni­ture and “other” man­u­fac­tur­ing were down 13.6 per­cent. On a monthly ba­sis, man­u­fac­tur­ing pro­duc­tion rose 2.3 per­cent, the first in­crease since Novem­ber.

Ac­cord­ing to Trad­ing Eco­nom­ics In­dus­trial Pro­duc­tion in South Africa av­er­aged 0.96 per­cent from 1974 un­til 2017, reach­ing a record high of 18.5 per­cent in May of 1995 and a record low of -23.20 per­cent in April of 2009 – in the midst of the global fi­nan­cial melt­down.

Re­mained weak

John Ash­bourne, Africa econ­o­mist at Cap­i­tal Eco­nom­ics, said that April’s ac­tiv­ity data sug­gested that South Africa’s econ­omy re­mained weak at the start of the sec­ond quar­ter, but that sales fig­ures ex­pected next week will give a clearer pic­ture of the state of the econ­omy.

“Re­tail sales fig­ures for April will be re­leased on June 14. Given that con­sumer-fac­ing sec­tors were the key cause of the re­ces­sion in the first quar­ter.

“This fig­ure will be a cru­cial sign of whether or not things have im­proved. In­deed, as the cur­rent pe­riod of rapid min­ing growth passes, the econ­omy will be in­creas­ingly de­pen­dent on the fal­ter­ing con­sumer sec­tor,” Ash­bourne said.

April’s down­beat man­u­fac­tur­ing and min­ing fig­ures are the sec­ond set of data to catch pun­dits by sur­prise.

Ear­lier in the week the coun­try sur­pris­ingly fell into a tech­ni­cal re­ces­sion af­ter the gross do­mes­tic prod­uct (GDP) con­tracted by an an­nu­alised 0.7 per­cent in the first three months of the year, fol­low­ing a 0.3 per­cent drop in the com­par­a­tive pe­riod.

The man­u­fac­tur­ing sec­tor con­trib­utes around 12.4 per­cent to GDP.

El­ize Kruger, a se­nior econ­o­mist at NKC African Eco­nom­ics, said that South Africa’s re­cent credit rat­ing down­grades to sub-in­vest­ment grade had in­creased the risk of fur­ther cur­rency de­pre­ci­a­tion, a higher tax bur­den and lower in­vest­ment, which would weigh on over­all eco­nomic and man­u­fac­tur­ing sec­tor growth.

“April’s pro­duc­tion fig­ures con­firmed that the sec­tor re­mains un­der pres­sure, plagued by weak do­mes­tic and global de­mand for lo­cally man­u­fac­tured goods, while low con­fi­dence lev­els among house­holds and busi­nesses fur­ther strain the sec­tor,” Kruger said.

She, how­ever, said a slight im­prove­ment in global eco­nomic con­di­tions could be some­what of a pos­i­tive off­set­ting fac­tor.

Last week, the World Bank said global eco­nomic growth will strengthen to 2.7 per­cent this year, driven by a pick-up in man­u­fac­tur­ing and trade, sta­bil­is­ing com­mod­ity prices and ris­ing mar­ket con­fi­dence. It also ex­pected growth to re­sume in the com­mod­ity-ex­port­ing emerg­ing mar­ket and de­vel­op­ing economies.

Stats SA also said that the min­ing sec­tor also fell into con­trac­tion in April, with pro­duc­tion down 1.6 per­cent on a monthly ba­sis af­ter in had picked up sig­nif­i­cantly in the pre­ced­ing month.

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