SA manufacturing shows signs of life

SOUTH Africa’s manufacturing production fared much better in November, but was nonetheless underperforming in contrast to global figures, data showed yesterday.

Manufacturing output surprised on the upside when it rose by 1.9 percent year-onyear in November, beating market expectations, after contracting by 2.7 percent in October, Statistics South Africa (StatsSA) said yesterday.

On a month-on-month basis, factory production rose 0.3 percent but edged down 1.1 percent in the three months to November compared with the previous three months.

Market consensus was a 0.9 percent decrease in manufacturing volumes.

Nedbank said the manufacturing sector was expected to fare better in 2017, with output rising off last year’s low base as global growth accelerated moderately, international commodity prices continued to drift higher and domestic demand conditions start to improve.

Nedbank said yesterday’s figures again confirmed that economic activity remained weak and underlying confidence fragile.

It said the upside risks to inflation had eased noticeably since all three major ratings agencies affirmed South Africa’s sovereign risk rating in early December and the rand has held up relatively against most major currencies so far in January.

“These developments have reduced the chances of further monetary tightening in early 2017.

“Interest rates have probably peaked. We still expect the MPC (monetary policy committee) to remain cautious, leaving rates at current levels for some time, given the downside risks posed to the rand by a volatile domestic landscape and changing global dynamics.”

The Barclays Bank manufacturing PMI (purchasing managers’ index) remained below the neutral threshold of 50.0 last month at 46.7, following readings of 48.3 in November and 45.9 in October.

For the fourth quarter as a whole, the index averaged lower, at 47.0 compared with 48.9 in the third quarter.

Kamilla Kaplan, an economist at Investec, said the advance indications provided by the PMI would therefore suggest actual manufacturing production did not recover meaningfully in the last quarter, from the contraction in the third quarter.

She said the decline in the PMI at the year-end raised some concern over the outlook for the sector heading into 2017.

She said external demand was expected to remain mostly modest, with the World Bank recently predicting only a muted recovery in global trade momentum in 2017, with downside risks stemming from more protectionist trade policy measures among the major economies.