Manufacturing output fumbles but sector averts quarterly loss

South Africa’s manufacturing output was lower in June compared to May despite no scheduled power outages implemented during May or throughout Q2 2024, but the sector did avert a quarterly loss.

According to Statistics SA, the latest numbers show that even with improved operating conditions, businesses still faced weak demand for manufactured goods. However, the strong data print for April provided enough of a boost for total manufacturing output to record positive quarterly growth of 0.9% in the second quarter.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says the soft manufacturing output numbers for June were broadly in line with their expectations.

Seasonally adjusted manufacturing production dipped by 0.5% in June compared to the 3.6% decrease recorded during May. Manufacturing output was down 5.2% compared to May 2023, mostly due to base effects, after the previous month’s 1.2% contraction.

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Negative contributions in these sub-sectors

The largest negative contributors to the annual decline were:

• Basic iron and steel, non-ferrous metal products, metal products and machinery: -8.4% and contributing -1.8 percentage points
• Motor vehicles, parts and accessories and other transport equipment: -15.6% and contributing -1.6 percentage points
• Food and beverages: -6.0% and contributing -1.4 percentage points

Seasonally adjusted manufacturing production was up by 0.9% in the second quarter compared to the first quarter. According to Statistics SA, six of the ten manufacturing divisions reported positive growth rates over this period.

This graph shows how manufacturing output was down in monthly and annual terms during June:

Source: StatsSA

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Modest contribution from manufacturing output to GDP expected

Van der Linde says although demand for manufactured goods remains weak, the sector should still make a modest positive contribution to total GDP in the second quarter. “The latest factory output data aligns with our view that weak demand has offset the impact of load shedding reprieve during the second quarter.

“We currently forecast that the South African economy grew by 0.3% in the second quarter compared to the first quarter’s 0.1% contraction. Looking ahead, we are cautiously optimistic that demand will improve gradually throughout the second half of the year, which should translate into stronger economic activity.”

He says the notable increase in the July PMI numbers may mark a turning point for South Africa’s manufacturing sector, which has struggled to gain traction. “Our base case is for real GDP to expand by 0.8% in 2024 and with economic growth forecast to reach 1.6% next year thanks to improved post-election growth prospects.”