Manufacturing production in South Africa is expected to continue on a downward spiral on the back of crippling power cuts in spite of falling less than expected in May.
Data from Statistics South Africa (StatsSA) yesterday Tuesday, showed that manufacturing output shrank by 2.3 percent from a year earlier in May as half of the manufacturing divisions recorded a decline in activity.
This was slightly better than market forecasts of a 2.4 percent decline, but marked the third consecutive month of contraction in manufacturing activity following a significant downwardly revised 7.6 percent slump in April.
The Don Consultancy Group (DCG) chief economist Chifi Mhango said the manufacturing print in May declined at a slower pace than in the previous month, thus reflecting a slight recovery from the negative impact of the floods in KwaZulu-Natal.
“Manufacturing production still reflects a weak environment, as the pressures of electricity supply and rising industrial production cost base persist, despite a continued improvement in production sales since November 2021,” Mhango said.
“Unreliable supply patterns of electricity, increasing logistical costs, unstable nature of the labour environment coupled with rising imports of finished goods into the South African economy still hinder the industrialisation progress in the economy.”
StatsSA said manufactures of motor vehicles, and other transport equipment, and manufacturers in food and beverages were the biggest drags on production.
StatsSA’s director of industry statistics Nicolai Claassen said the automotive division was the largest negative contributor, recording a decrease of 19.2 percent year-on-year.
“This decline was mainly driven by a decline in the production of parts and accessories,” Classen said.
“Manufacturers specialising in the production of food and beverages registered a decrease of 4.1 percent year-on-year. The South African economy also saw a decline in output for manufacturers in wood, paper, printing and publishing, and metals and machinery.”
On the upside, output rebounded for five manufacturing divisions as they recorded a year-on-year rise.
The petroleum, chemical products, rubber and plastic products division was the largest positive contributor.
On a seasonally adjusted monthly basis, manufacturing output went down by 0.2 percent in May, defying market expectations of a 1.5 percent increase.
Nedbank economist Tachin Ramnath said production volumes remained below the May 2019 levels and 3-year averages from 2017 to 2019.
Ramnath noted that even though manufacturing activity declined in May, the rate of contraction slowed significantly after the devastating KZN floods severely impacted production volumes in April.
“However, the sector’s outlook remains gloomy as global risks relating to the war in Ukraine will likely persist into the second half of the year,” Ramnath said.
“Tighter global monetary policies in response to surging global inflation threaten to weaken global growth and reduce demand from key trading partners.
“The resurgence of Covid-19 cases in China and India also does not bode well for international trade volumes if lockdown measures are reintroduced.”
BUSINESS REPORT