By Thanda Sithole
TOTAL manufacturing output (not seasonally adjusted) was up by a negligible 0.2% y/y in February, reflecting a moderation from a downwardly revised 2.0% y/y (previously 2.9% y/y) in January. Negatively, seasonally adjusted manufacturing output, which aligns with the official calculation of quarterly GDP growth, contracted by 1.1% m/m following growth of 2.0% m/m in January.
The monthly decline in manufacturing output defied the PMI, which had signalled a possibly faster increase in output. We suspect that February’s electricity load shedding (including stage 4) might have impacted manufacturing activity. At this stage, this data (though incomplete) corroborate our view that economic growth was sustained in 1Q22, albeit at a slower pace relative to 4Q21.
We maintain our view that domestic demand should support manufacturing output while external demand should support manufacturing export volumes. However, we are concerned about higher prices and their impact on domestic consumers’ purchasing power and generally higher manufacturing input costs, which might affect production volumes. Worsening supply chains related to the Russian invasion of Ukraine and strict Covid-19 lockdown measures in Shanghai could affect global (and domestic) industrial production. In February, the intermediate producer price (i.e., prices of goods as they enter the production process) inflation was still in double digits at around 19% y/y, while headline producer inflation measured 10.5% y/y, reflecting an acceleration from 10.1% y/y in January.
Subsector performance in February 2022
In February, the mere 0.2%y/y growth in total manufacturing production primarily reflected growth performance by the food and beverages and basic iron and steel subdivisions. Specifically, food and beverages output grew by 4.2% y/y and contributed 0.9ppt, reflecting a moderation from 12.2% y/y in the previous month.
Basic iron and steel (i.e., basic iron and steel, non-ferrous metal products, metal products and machinery) output grew by 3.9% y/y, reflecting an acceleration from 2.6% y/y in January. Combined, these two subdivisions account for about 40% of total manufacturing output. Nevertheless, their growth contributions were counteracted by significant negative growth in the following larger subdivisions:
- Motor vehicles, parts and accessories and other transport equipment contracted by 7.1% y/y after contracting by 8.0% y/y and 3.9% y/y in December 2021 and January 2022, respectively.
- Petroleum-related products (i.e., petroleum, chemical products, rubber and plastic products) contracted by 2.6% y/y in February, reflecting a prolonged period of contraction.
- Wood and wood products, paper, publishing and printing output contracted by 5.2% y/y following 6.5% y/y growth in January.
Thanda Sithole is a Senior Economist at FNB