One of South Africa’s most important sectors just beat expectations – but there’s a catch

 ·11 Jun 2024

Manufacturing production in South Africa exceeded consensus expectations and grew by 5.3% y/y in April, following a 6.5% y/y contraction in March.

This is according to StatsSA’s recent Manufacturing: Production and Sales preliminary update for April 2024, with the Bureau for Economic Research (BER) Business Confidence survey saying that business confidence amongst manufacturers (although remaining subdued) has now seen “confidence [rise] by 7 points to 28% – the best level in two years.”

However, Investec economist Lara Hodes said that “despite April’s positive outcome, domestic demand remains sluggish.”

“Advance indications provided by May’s Purchasing Managers’ Index indicate that conditions in the domestic manufacturing sector deteriorated somewhat in May [while] heightened political uncertainty led to many orders being placed on hold.”

Table: Investec

The petroleum, chemical products, rubber, and plastic products sector experienced a year-on-year growth of 5.1%. With substantial share in the manufacturing basket, accounting for 24.86%, this sector added 1.1 percentage points to the overall growth figure.

Additionally, the combination of the food and beverages sector, the wood and wood products industry, and the basic iron and steel sector contributed an extra 2.7 percentage points to the headline outcome.

Hodes said that “April’s result is supported by the movement of the seasonally adjusted (SA) headline Purchasing Managers’ index (PMI), which climbed 4.8 points at the start of the second quarter, moving back into expansionary territory with a reading of 54.0.”

Graphic: Investec

“Both the business activity and new sales orders’ indices improved considerably during the month,” said Hodes.

This is expected to be as a result of the impact that the extended delay of load-shedding, which is likely supporting business conditions in the factory sector, according to the BER.

Hodes said that the demand environment globally has also improved.

The Investec economist cited the JP Morgan Global Manufacturing PMI Survey, saying that the lift in global manufacturing “was sustained into April, as rising intakes of new work and a slight expansion of international trade volumes supported mild production growth.”

However, Hodes said that despite April’s positive outcome, domestic demand remains sluggish, with the BER survey respondents saying “that orders are drying up as consumers seem to be focusing on necessities.”

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