The latest manufacturing data for South Africa shows a marked decline in production by 5.2% in June, significantly lower than market expectations of -0.9%.<\/p>\n\n\n\n
This follows May’s slide of 1.2% (revised), pointing to a considerable recession in a sector that employs over 1.3 million people and contributes approximately 13% to GDP.<\/p>\n\n\n\n
Seasonally adjusted output shrank by 0.5% month on month, better than the 3.6% monthly decline in the prior month.<\/p>\n\n\n\n
However, when measured on a quarter-on-quarter seasonally adjusted (qqsa) basis\u2014the measure used to calculate GDP\u2014the manufacturing sector increased, albeit modestly, by 0.9%, supported by April\u2019s strong result.<\/p>\n\n\n\n
This is a better outcome than in the first quarter of the year, where qqsa shrank by 1.2% in 1Q24. <\/p>\n\n\n\n
Therefore, the sector should still add favourably to the second quarter\u2019s GDP reading overall.<\/p>\n\n\n\n
According to Investec economist Lara Hodes, a breakdown of June\u2019s manufacturing data indicates that the contraction in production was broad-based, with only the wood and wood products, paper, publishing and printing grouping, and the petroleum, chemical products, rubber, and plastic products category increasing compared to the same period last year.<\/p>\n\n\n\n
“The largest negative contributor to the headline reading was the basic iron and steel, non-ferrous metal products, metal products and machinery segment, which fell by -8.4% y\/y and detracted -1.8% points from the topline number,” she noted.<\/p>\n\n\n\n
The food and beverages grouping which makes up a substantial 21.44% of the manufacturing basket, together with the motor vehicles, parts and accessories and other transport equipment segment detracted a further, combined -3.0% points from the headline outcome. <\/p>\n\n\n\n
This is supported by Naamsa\u2019s new vehicle sales release for June which shows that sales were down -14.0% y\/y during the month.<\/p>\n\n\n\n
“Moreover, the Absa Purchasing Managers\u2019 Index remained in contractionary terrain at 45.7 at the end of the second quarter, evincing a still subdued manufacturing sector,” Hodes said.<\/p>\n\n\n\n
Specifically, the Business activity sub-index declined during the month while new sales orders remained lacklustre at 37.9. <\/p>\n\n\n\n
More positively, advance indications provided by July\u2019s PMI reading show that conditions picked up notably, with the index moving back into positive territory. <\/p>\n\n\n\n
Business activity and new sales orders jumped 14.5 and 17.4 points, respectively. <\/p>\n\n\n\n
According to the Bureau for Economic Research, the improvements suggest that on-hold orders are now being realised and translated into better activity, \u201cwhich bodes well for a stronger performance by the sector\u201d in the third quarter of 2024.<\/p>\n\n\n\n
FNB senior economist Thanda Sithole said the print was materially worse than expected, but echoed sentiments that, overall, the sector rebounded over the full quarter.<\/p>\n\n\n\n
However, it still shows weak demand in the sector.<\/p>\n\n\n\n
“Overall, despite easing energy and supply chain constraints, the weak manufacturing output performance underscores the lacklustre demand for manufactured products, as reflected across various manufacturing divisions outlined below,” Sithole said.<\/p>\n\n\n\n
While manufacturing activity underperformed in the first half of 2024, some recovery is anticipated in the second half, the economist noted.<\/p>\n\n\n\n
“The manufacturing PMI began the third quarter on a positive note…Additionally, manufacturers have shown slightly more optimism about improvements in operating conditions in the near term.”<\/p>\n\n\n\n