TOTAL manufacturing production, not seasonally adjusted, declined sharply by 6.4% y/y in March, reflecting a material deterioration from the 4.0% y/y (previously 4.1% y/y) expansion in February. This was due, in part, to the Easter holiday falling in March this year versus April last year. FNB senior economist, Thanda Sithole comments that the outcome was unexpected and below the Reuters consensus prediction of a 0.4% y/y increase.
Seasonally adjusted output, which aligns with the official calculation of quarterly GDP growth, shrank by 2.2% m/m, consistent with the manufacturing PMI business activity index which fell to 44.5 points from 48.6 points between March and February. In the first quarter, manufacturing output declined by 1.0% q/q, after expanding by a muted 0.3% in Q423. The latest Stats SA data release confirms that the manufacturing sector dragged GDP growth during the first quarter this year. This is on top of the drag from the electricity sector, based on electricity production shrinking by 1.0% q/q. Such outcomes corroborate our view that the economy remains bound in a low growth regime amid ongoing infrastructure constraints and cyclical factors weighing on demand and appetite for spending, said Sithole.
Outlook
Despite the persistent challenges, the manufacturing sector has exhibited remarkable resilience. With a year-to-date expansion of 0.2% y/y, we remain optimistic about sustained average annual growth in manufacturing output this year, following 0.5% growth in 2023, says Sithole. Growth should be supported by the improvement in load-shedding intensity, which has stabilised since its peak last year, as well as a gradual increase in domestic demand. While manufacturers anticipate an improvement in operating business conditions in the near term, expectations were slightly tempered in April, with the PMI expected business conditions index falling to 55.7 points from 62.1 in March, indicating that conditions remain fluid. However, output likely recovered in April as the PMI business activity index lifted strongly to 57.2 points from contractionary territory in March.
Selected sector analysis
Output declined in the following manufacturing divisions:
- Motor vehicles, parts and accessories, and other transport equipment declined sharply by 25.9% y/y in March, worse than the 4.8% y/y decline in February, dragging overall output growth by 2.7 percentage points. All sub-divisions declined, with motor vehicle output declining by 29.4% y/y, following five successive months of growth. Parts and accessories declined further by 33.5% after declining by 16.5% y/y in February.
- Basic iron and steel, non-ferrous metal products, metal products, and machinery declined by 9.0% y/y, following 1.0% growth in February.
- The petroleum, chemical products, rubber, and plastic products division contracted by 3.9% y/y, after expanding by 4.6% y/y. The decline was more evident and severe in rubber products, basic chemicals, other chemical products and plastic products.
- Output in the food and beverages division fell by 1.6% y/y, after increasing by 4.9% y/y. Meat, fish and fruit products declined by 8.4% y/y, dairy products by 9.4% y/y and grain mill products by 8.1% y/y.
- Textile, clothing, leather and footwear declined by 9.4% y/y, worse than the 0.6% decline experienced in February. This reflected a 15.6% decline in textiles, 10.9% y/y decline in leather goods and a 7.3% y/y decline in footwear products.
- Output in furniture and “other” manufacturing declined by 7.7% y/y, after expanding by 6.7% y/y in February.
While the following divisions experience modest output growth:
- The wood and wood products, paper, publishing and printing division increased by a mere 0.5% y/y, reflecting a moderation from the solid growth of 14.8% y/y in February. All sub-divisions experienced some growth except the publishing division which declined by 10.5% y/y.
- Glass and non-metallic mineral products expanded by 3.3% y/y, after expanding by 11.3% y/y.
- Electrical machinery output was effectively flat at 0.1% y/y, down from 2.9% growth in February.
- And, the radio, tv and communication apparatus, professional equipment division expanded by 2.1% y/y, up from 1.0% growth over the corresponding period.
