Manufacturing sector taking strain despite slight recovery in July
THE MANUFACTURING sector recovered slightly in July after a sharp decline in June, but weak domestic demand and low confidence levels continued to afflict trade.
Data from Statistics South Africa (StatsSA) yesterday showed that manufacturing output fell 1.1 percent in July, posting a second consecutive monthly decline year-on-year compared with July 2018.
StatsSA said the decline was due to negative contributions made by petroleum, chemical products, rubber and plastic products, basic iron and steel, non-ferrous metal products, metal products and machinery, and wood and wood products, paper, publishing and printing.
Food and beverages, motor vehicles, parts and accessories and other transport equipment were the largest positive contributors, contributing 1.9 percentage points and 0.6 percentage points, respectively.
The slight recovery was in line with second quarter gross domestic production rebound from a low base to a positive growth of 3.1 percent.
Manufacturing, driven by higher output in food, transport and metals and machinery, was one of the other three industries that saw positive economic growth in the second quarter.
Economists said they anticipated a mild recovery in the future on the back of a notable but transitory upturn in the Absa manufacturing Purchasing Managers’ Index (PMI) to 52.1 points in July.
FNB chief economist Mamello Matikinca-Ngwenya outlined the factors behind the manufacturing production decline for the second consecutive month. “The latest results indicate that the manufacturing sector continues to be hampered by weak domestic demand and low confidence levels,” Matikinca-Ngwenya said.
“The Absa PMI declined below the 50-point neutral mark in August to 45.7 index points. Excluding July, the Absa PMI has been below 50 points throughout 2019.”
Investec’s Lara Hodes said although the reading was reflective of the Bureau for Economic Research’s July PMI outcome, it remained indicative of South Africa’s constrained domestic environment, underpinned by subdued sentiment levels.
“This result does not bode well for the domestic manufacturing sector, which continues to be burdened by weak consumer demand and fixed investment spend, coupled with softening export growth prospects,” Hodes said.
In the three months to the end of July, seasonally adjusted manufacturing production decreased 1.4 percent compared with the previous three months. Six of the 10 manufacturing divisions reported negative growth rates over this period.
On a seasonally adjusted basis, manufacturing production was flat, increasing by a mere 0.4 percent in July month-on-month compared with June 2019.
This followed monthly declines in June and May of 1.9 percent and 2.3 percent, respectively.