Factories in the doldrums face more load-shedding too

A collapse in manufacturing in April has set in stone the bleak picture of an economy brought to its knees during the harshest term of the Covid-19 lockdown.

And economists are braced for more misery from a familiar source — Eskom load-shedding, which had helped to push the economy into its second recession in two years even before the coronavirus pandemic.

Manufacturing production plummeted by an annual 49.4% in April, data released by Stats SA showed on Tuesday. On a month-on-month, seasonally adjusted basis, it plunged 44.3%. That easily outpaced the worst declines recorded during the global financial crisis in 2009. In April that year, manufacturing fell 23.2%, according to Nicolai

Claassen, director of industry statistics at Stats SA.

On top of the pandemic fallout, the sector faces severe headwinds with reliable electricity supply not assured, while the country struggles to implement long-promised reforms needed to boost growth, attract investment and drive demand.

“Manufacturing production will remain subdued in 2020 as the sector grapples with inherent and external constraints, including unreliable electricity supply, structural imbalances, generally weak demand, as well as the coronavirus pandemic,” Nedbank economists Nicky Weimar and Candice Reddy wrote in a note.

In what may be a bad omen for an economy struggling to right itself, Eskom on Thursday warned of power constraints and possible load-shedding into the weekend after several generating units tripped or struggled to come back on line.

Manufacturing, accounting for 13% of GDP and 10.4% of employment, has now recorded its 11th month of consecutive decline. During the first quarter of 2020, manufacturing was the second-biggest drag on growth after mining, contracting 8.5%. GDP shrank 2% in the first three months of 2020.

“Reliable electricity supply and the hastened implementation of crucial reforms by the government remains paramount. However, uncertainty surrounding the global recovery, with second waves of infections resurfacing and restrictions being reinstated in some countries, will continue to weigh on our domestic predicament,”

Investec economist Lara

Hodes said.

A particular concern is the outlook for jobs in a sector that has already shed more than 72,000 in the past five years, Momentum Investments economist Sanisha Packirisamy said.

She noted that recent data from the Absa/Bureau for Economic Research purchasing managers’ index (PMI) — a gauge of business conditions in the sector — suggested further job losses are on the horizon.

Meanwhile, the recent consumer confidence index revealed a collapse in consumer sentiment towards buying durable goods, such as cars and furniture. “As such, manufacturing spare capacity may remain elevated in these sectors and this could weigh on production levels in these sectors for some time,” Packirisamy said.

The outcome was not a surprise given that during April the country experienced the most severe phase — level 5 — of the lockdown with virtually all economic activity stopped.

“What we don’t know yet is how much long-term damage this decline caused and how many manufacturers actually survived,” Kevin Lings, chief economist at Stanlib, said.

According to Stats SA the decline was broad-based, covering all 10 segments of manufacturing. The largest contributions to the annual decline came from the basic iron and steel, nonferrous metal products, metal products and machinery segment, which declined 65.4%. This was followed by the petroleum, chemical products, rubber and plastic products segment, which slumped 41.5%.

Motor vehicles, parts and accessories and other transport equipment, experienced the steepest decline in production, crashing 98% from the same period a year earlier, according to Stats SA.