Manufacturing Production Surprise for South Africa: Latest Data Reveals 1.7% Increase
A Welcome Turnaround in Manufacturing Production
South Africa’s manufacturing sector has sprung a welcome surprise with the latest data revealing a 1.7% increase in manufacturing production in July 2024 compared to July 2023. This surpasses analysts’ expectations of a 0.7% increase, signaling a turnaround in the sector.
Driving Forces behind the Growth
The rebound in manufacturing production was driven by significant contributions from the food and beverages division, which saw a 9.5% increase, contributing 2.0 percentage points to the overall growth. Furthermore, the basic iron and steel, non-ferrous metal products, metal products, and machinery division also made a notable contribution, with a 5.2% increase, contributing 1.1 percentage points.
Challenges in the Automotive Sector
However, the motor vehicles, parts and accessories, and other transport equipment division made the largest negative contribution, with a decline of 12.1%, contributing -1.3 percentage points. The automotive sector has been struggling, with a 10.4% year-to-date decline, due to weak demand amid affordability challenges and a 15-year high interest rate environment.
Seasonal Adjustments and Outlook
In addition, seasonally adjusted manufacturing production increased by 2.1% in July 2024 compared with June 2024. This builds on the previous month’s decline of 0.4% in June 2024 and 3.3% in May 2024, indicating a positive trend in the sector. However, the sector still faces challenges, with seven of the ten manufacturing divisions reporting negative growth rates over the three months ended July 2024.
Thanda Sithole, FNB Senior Economist, notes that the month-on-month improvement aligns with the PMI business activity index, which increased from 36.3 in June to 50.8 in July, indicating a strong start to Q3 2024. Moreover, the data suggests that a modest recovery is anticipated in the near term, although it will likely be uneven.
Factors Affecting Manufacturing Activity
Manufacturing production has shown unexpected improvement, yet hurdles persist for the sector. Henceforth, several key factors will play a pivotal role in bolstering industrial output. To begin with, an environment free from load-shedding is paramount. Moreover, anticipated interest rate reductions could invigorate economic activity. In conjunction with this, a more stable rand would enhance competitiveness. Notwithstanding these positive developments, Thanda Sithole underscores a concerning trend. The 0.4% year-to-date decline in factory output underscores demand challenges. This downturn stems from weak consumer fundamentals. Correspondingly, broad-based weakness in private sector fixed investment exacerbates the situation.
Looking Ahead
Manufacturing production shows signs of improvement, despite recent challenges. Nonetheless, vigilance remains crucial. The PMI expected business conditions index warrants close scrutiny. Notwithstanding its decline to 61.3 points in August, it surpasses the year’s initial 58.7 reading. Subsequently, this metric will offer critical insights into future sector performance. In the interim, recent figures spark optimism for industrial output. Consequently, policymakers must foster an environment conducive to growth. By the same token, they should implement measures to bolster the sector’s resilience and competitiveness.
Source: BusinessTech