Manufacturing sector activity continues to decline
ctivity in the manufacturing sector in South Africa continued to decline – albeit at a softer pace – due to subdued demand for chemical products and furniture, which could impact projected economic growth for 2021. (Stefan Sauer/dpa via AP, file)
ACTIVITY in the manufacturing sector in South Africa continued to decline – albeit at a softer pace – due to subdued demand for chemical products and furniture, which could impact projected economic growth for 2021.
Statistics South Africa (StatsSA) on Monday said manufacturing production shrank by a marginal 0.7 percent year-on-year in November 2021, better than the market forecasts of 4.3 percent and 3.6 percent decline, respectively.
This followed a downwardly revised 8.5 percent decline in October, after being severely impacted by load shedding and the three-week steel and engineering strike.
StatsSA said output fell at a softer pace for petroleum, chemical products, rubber and plastic products, in particular coke, petroleum products and nuclear fuel at 13.6 percent. Furniture and “other” manufacturing fell by 7.9 percent. Q4 Absa manufacturing survey reflects decline in business confidence for second time in a row.
Outlook for the country’s business activity remains strong, despite new variant fears
SA mining buoyed by rising output in gold, iron ore However, production rebounded for basic iron and steel, non-ferrous metal products, metal products and machinery at 4.4 percent.Electrical machinery, food and beverages also made a positive contribution to the manufacturing print.
On a seasonally adjusted monthly basis, manufacturing output rose 3.7 percent, recovering significantly from a downwardly revised 5.2 percent slump in the preceding month.
FNB senior economist Thanda Sithole said output recovery should continue, but the growth rate would likely moderate in 2022.
Sithole said annual manufacturing output growth was likely stronger at around 7.6 percent in 2021 after contracting by 12.3 percent in 2020, despite the incomplete recovery.
“Manufacturing output also faces constrained domestic demand.”
In spite of a potential recovery in the sector, manufacturing activity still remains below pre-pandemic levels, with output 6.1 percent lower than the November 2019 levels.
The broad petroleum, chemicals, rubber, and plastics and basic iron and steel, non-ferrous metal products, and machinery is lagging far behind.
Nedbank senior economist Nicky Weimar said the sector’s outlook remained gloomy as raw material shortages, global supply chains issues, and high freight costs continue to pose downside risks to the outlook.
“Furthermore, the rapid spread of the Omicron variant and the reimpositions of lockdowns among key trading partners could disrupt economic activity and further dampen the pace of recovery,” Weimar said.
With subdued manufacturing activity, Investec economist Lara Hodes said they had lowered the estimated 2 percent growth in gross domestic product (GDP) with load shedding occurring when demand exceeds supply.
“We anticipate GDP growth of around 1.8 percent this year, however key risks remain with electricity supply constraints a concern,” Hodes said.