Manufacturing sector threatens to drag Q3 GDP growth despite easing load shedding

However, a rebound in the manufacturing of iron and steel and non-ferrous metals provided some upshot of recovery. Picture: Ayanda Ndamane/ Independent Newspapers

However, a rebound in the manufacturing of iron and steel and non-ferrous metals provided some upshot of recovery. Picture: Ayanda Ndamane/ Independent Newspapers

Published Nov 13, 2024

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Productivity in South Africa’s manufacturing sector fell for the second month in a row in September, remaining subdued despite easing electricity supply challenges.

Economists yesterday said they were expecting the sector to make up only a small positive contribution to overall gross domestic product (GDP) growth for the 2024 third quarter period ending September.

However, a rebound in the manufacturing of iron and steel and non-ferrous metals provided some upshot of recovery.

Statistics South Africa (Stats SA) yesterday revealed that manufacturing output in September 2024 sank by 0.8% year-on-year.

A significant driver of this decline was the motor vehicles, parts, and accessories sector, which plummeted by 18.7%.

This downward trend continues from previous months, where the sector recorded a 0.7% decline in August and a modest increase of 1.7% in July on a month-on-month basis.

Thanda Sithole, senior economist with FNB, said the production performance for the manufacturing sector in September came “as a surprise, defying the Reuters consensus prediction of a 0.9% year on year expansion”.

Although production was flat on a seasonally adjusted basis for the September quarter, the data was in contrast to the manufacturing PMI business activity index, which rose to 53.1 points in September from 34.6 in August.

Sithole said this was indicative of “potential expansion” for the sector although the overall 2% increase in productivity for the sector in the second quarter, down from 0.6% in the second quarter of this year signalled “a reduced contribution to third-quarter GDP” growth.

Despite the surprise downturn in productivity for September, there were some positive picks, with petroleum, chemical products, rubber and plastic products growing 3.1%.

The food and beverages sector grew 1.2% while for the third quarter period, basic iron and steel, non-ferrous metal products, metal products and machinery divisions which grew by 3.6%.

“Despite easing energy constraints and lower input costs, manufacturing activity remains sluggish. This reflects weak demand, driven by fragile consumer fundamentals and broad declines in private sector investment,” explained Sithole.

SA’s manufacturing sector sales fell by 1% in September 2024 compared to August 2024. This followed month-on-month changes of -2.6% in August 2024 and 1.8% in July 2024, with Sithole explaining that external demand for limited, thereby constraining manufactured goods exports.

Jacques Nel, the head of macro economics at Oxford Economics Africa also said the manufacturing sector was set to make a “small positive contribution” to Q3 GDP.

“Nevertheless, easing supply-side constraints combined with gradually rising demand make for a more optimistic outlook for 2025 relative to the start of this year,” said Nel.

Analysts are, however, expecting “a gradual, uneven recovery in the near term as demand conditions improve with easing cost-of-living” pressures.

“Although the manufacturing PMI expected business conditions index dropped to 62.7 in October from 70.8 in September, it still suggests that manufacturers anticipate modestly improving operating conditions over the near term,” said Sithole.

Lara Hodes, an economist with Investec, noted that “the improvement in the electricity supply environment is positive for energy intensive producers, while domestic demand is projected to pick up” pace supported by lower inflation and monetary easing.

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