Manufacturing drags South Africa’s GDP

·9 May 2024

Manufacturing production in South Africa has fallen well short of market expectations and will hurt the upcoming GDP figures for Q1 2024.

Manufacturing production contracted by a notable 6.4% year-on-year in March, following a revised 4.0% increase in February.

The outcome was far weaker than the Bloomberg consensus of a 0.3% year-on-year lift.

The following divisions made the largest negative contributions

Motor vehicles, parts and accessories and other transport equipment (-25.9% and contributing -2.7 percentage points);

Basic iron and steel, non-ferrous metal products, metal products and machinery (-9.0% and contributing ‑1.9 percentage points); and

Petroleum, chemical products, rubber and plastic products (-3.9% and contributing -0.8 of a percentage point).

Seasonally adjusted manufacturing production dropped by 2.2% in March 2024 compared with February 2024, following a 1,0% month-on-month decrease in February 2024.

Investec economist Lara Hodes said that quarter-on-quarter production decreased by 1.0% in Q1 2024, which will detract from the country’s Q1 2024 GDP reading.

Hodes said that the negative results were related to the ABSA Purchasing Managers’ index for March, which moved into contractionary territory (below the neutral 50 score), where the business activity and new sales orders’ indices dropped.

However, South Africa isn’t at risk of a technical recession (two consecutive quarters of contractions in GDP) as GDP increased by 0.1% quarter-on-quarter in Q4 2023.

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,” said FNB senior economist Thanda 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.”

Manufacturers expect an improvement in operating business conditions in the near term, even if the PMI’s expected business conditions index dropped from 62.1 in March to 55.7 points in April.

Output likely improved in April, with the PMI business activity index lifting strongly from contractionary territory in March to 57.2 points in April.