Growth in factories points to recovery
MANUFACTURING grew by a more than expected 5.4% in July compared with the same month last year, its strongest rise since April, pointing to a recovery trend in the economy’s second biggest industry, according to local producers.
Statistics SA figures released yesterday showed the 5.4% year-on-year jump was from a very low 0.4% rise in June, and was against a BDlive median consensus forecast of 1.7%.
Although this marks a positive start to the third quarter, a strike by vehicle manufacturing workers which crippled assembly plants last month could see manufacturing growth come in weaker when August production data is released.
The Kagiso purchasing managers’ index (PMI) has been in expansion territory for five consecutive months, supporting the latest jump in manufacturing data.
Producers have been earning more from exports because of a weak rand while growing signs of economic recovery in trade partners such as Europe and the US are lifting confidence for a pick-up in demand later this year into next year.
The growth in manufacturing also comes as an expectations index for trading conditions six months from now showed sentiment was positive. The South African Chamber of Commerce and Industry trade expectations survey remain in positive territory at 61 last month.
“I think this makes a strong case for government to intensify its industrial policy and local procurement efforts and for the rest of the private sector to come on board in terms of localisation of their procurement,” said Manufacturing Circle executive director Coenraad Bezuidenhout
While the outlook is not so bright given the strikes, the fourth quarter could prove more beneficial as the rand is expected to continue maintaining a weaker bias to year-end while demand might pick up in Europe and the US on improving economic growth there.
“There are certainly things to be positive about. First we have seen it in the PMI but when you see it in the hard data, it starts to have more of an impact,” Standard Chartered head of Africa research Razia Khan said.
She said that while manufacturing appeared to be on a “recovery trend”, strikes and the “full impact of industrial action” posed “substantial risks” to the economy.
The rise was mainly due to growth in divisions such as basic iron and steel‚ non-ferrous metal products‚ metal products and machinery; motor vehicles‚ parts and accessories and other transport equipment, and food and beverages. Those parts of the sector which primarily served the domestic market might enjoy some growth as demand switched from imports to more competitive domestic alternatives, said Absa Capital economist Peter Worthington.