Activity in the manufacturing sector is expected to remain volatile in the months ahead, especially if electricity supply deteriorates in winter in spite of production rebounding at the beginning of the second quarter.
Data from Statistics South Africa (StatsSA) yesterday showed that manufacturing output increased by 3.4% year on year in April following a downwardly revised contraction of 1.8% in March, buoyed by increases in metals and machinery, and food and beverages.
This first annual gain in six months marked a better start to the second quarter and reflected a rebound from five consecutive months of annual decline.
StatsSA said the largest contributions came from production of basic iron and steel, non-ferrous metal products, metal products and machinery, which rose by 5.3%.
Food and beverages production increased by 4.6%; petroleum, chemical products, rubber and plastics inched up by 2.8%; and motor vehicles, parts and accessories and other transport equipment went up by 5%.
StatsSA’s director of industry statistics, Nicolai Claassen, said eight of the 10 manufacturing divisions recorded a rise in economic activity.
Claassen said South African manufacturing turned positive in April after five consecutive months of year-on-year declines.
“The metals and machinery division was the largest positive contributor, expanding production by 5.3% year on year. Manufacturers in food and beverages made the second largest contribution, growing by 4.6%,” Claassen said.
Most other divisions recorded positive growth with the exception of wood, paper, printing, and publishing, and glass and non-metallic mineral products. The annual growth for wood, paper, printing, and publishing was flat in April. Glass and non-metallic mineral products recorded a year-on-year decline of 3%.
On a monthly basis, seasonally adjusted manufacturing production rose by 0.5% in April.
Seasonally adjusted manufacturing production increased by 1.2% in the three months ended April, 2023 compared with the previous three months.
FNB senior economist Thanda Sithole said the better outcome for manufacturing output came despite persistent load shedding, which saw Stage 6 implemented for over 13 days in April, and reflected some resilience in the broader manufacturing sector.
Sithole also said there were fewer working days in April than in each of the first three months in the first quarter, which technically implied that the monthly increase in output could have been better.
“Notwithstanding April’s better-than-expected manufacturing output growth, near-term activity in the manufacturing sector remains fragile and clouded by the unknown direct impact of load shedding, particularly during winter; logistical constraints; as well as moderating domestic and external demand,” Sithole said.
“Nevertheless, despite a bleak near-term outlook, the manufacturing sector should reflect modest growth over the medium term as private sector energy generation increases and load shedding eases.”
However, the latest RMB/BER business confidence index for the second quarter has shown that respondents in the manufacturing sector remained the most downbeat.
According to the index, confidence stayed at 17 index points in the second quarter, meaning that less than two out of 10 businesspeople in the sector were satisfied with prevailing business conditions.
The sector continued to be plagued by load shedding, which also presented an additional cost burden to producers.
Respondents saw demand and activity deteriorate further, and became even more worried about expected business conditions going forward.
Investec economist Lara Hodes yesterday agreed that the manufacturing industry was facing serious challenges in the coming months.
Hodes said advance indications provided by May’s Absa Purchasing Managers’ Index survey results showed that added to the downbeat assessment of the current environment, respondents are notably more negative about business conditions going forward.
“Excluding the boost provided by base effects in April, the manufacturing sector remains subdued,” she said.
“Indeed, the Absa PMI survey results indicate that business activity remained lacklustre in April, hindered by heightened rotational load shedding which continues to stifle productivity,” she said.
BUSINESS REPORT