Manufacturing surprise for South Africa

The latest manufacturing data is better than what analysts expected.

Manufacturing production increased by 1.7% in July 2024 compared to July 2023.

This rebounded from the 5.5% contraction in June and exceeded the consensus forecast of a 0.7% increase.

The following divisions made the largest positive contributions:

• Food and beverages (9.5% and contributing 2.0 percentage points); and

• Basic iron and steel, non-ferrous metal products, metal products and machinery (5.2% and contributing 1.1 percentage points).

The motor vehicles, parts and accessories, and other transport equipment division made the largest negative contribution (-12.1% and contributing -1.3 percentage points).

The automotive sector is down by 10.4% year-to-date, consistent with weak demand amid affordability challenges and a 15-year high interest rate environment.

Seasonally adjusted manufacturing production increased by 2.1% in July 2024 compared with June 2024. This followed month-on-month declines of 0.4% in June 2024 and 3.3% in May 2024.

However, seasonally adjusted manufacturing production decreased by 0.5% in the three months ended July 2024 compared with the previous three months.

Seven of the ten manufacturing divisions reported negative growth rates over the three months. The largest negative contribution was reported for the food and beverages division (-1.1% and contributing -0.3 of a percentage point).

Thanda Sithole, FNB Senior Economist, said that the m/m improvement aligns with the PMI business activity index, which increased from 36.3 in June to 50.8 in July.

The data suggests a strong start to Q3 2024.

That said, year-to-date (January to July), output remains lower by 0.4% compared to the same seven-month period last year, weighed on by weaker production in the automotive, bare iron and steel, and furniture divisions.

Outlook

“The 0.4% year-to-date decline reflects challenging demand conditions due to weak consumer fundamentals and broad-based weakness in private sector fixed investment,” said Sithole.

“However, a modest recovery is anticipated in the near term, although it will likely be uneven. This is indicated by the PMI expected business conditions index, which, despite falling to 61.3 points in August, remains above the 58.7 recorded at the start of the year.”

“Moving forward, a load-shedding free environment, the expected interest rate cuts, and a more stable rand will be critical factors in supporting manufacturing activity.”

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