Manufacturing output up in November despite supply-side issues

Manufacturing production bounced back in November after decreasing in October, despite supply-side issues that continue to plague industry, increasing by 1.9% compared to November 2022, while manufacturing sales also increased by 1.1% compared to October 2023.

According to Statistics SA’s production results for November 2023, seasonally adjusted manufacturing production increased by 0.8% compared to October, when there was a 0.1% decrease compared to September.

The uptick in seasonally adjusted manufacturing output also happened despite intensified load shedding in November, while port congestion also worsened considerably.

Favourable base effects meant that manufacturing production increased by 1.9% compared to a year ago. Jee-A van der Linde, senior economist at Oxford Economics Africa, says this was in line with consensus, after industry was adversely affected by a prolonged strike at Transnet in the fourth quarter of 2022.

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Positive contributors: wood and cars

The largest positive contributors to the annual increase were wood and wood products, paper, publishing and printing that increased by 8.0% and contributed 0.8 of a percentage point and motor vehicles, parts and accessories and other transport equipment, that increased by 5.7% and contributed 0.6 of a percentage point.

However, seasonally adjusted manufacturing output declined by 0.5% during the three months ending in November compared to the previous three months. Statistics SA also noted that seven of the 10 manufacturing divisions reported negative growth rates over this period.

The largest negative contributions came from food and beverages that decreased by 2.0% and contributed -0.5 of a percentage point and basic iron and steel, non-ferrous metal products, metal products and machinery, that decreased by 1.4% and contributed -0.3 of a percentage point.

Increase in manufacturing sales also good news

The increase in manufacturing sales of 1.1% in November compared to October followed month-on-month deceases of 0.5% in October and 0.1% in September. Manufacturing sales also increased by 2.1% in the three months ending in November compared to the previous three months.

The largest contributions came from motor vehicles, parts and accessories and other transport equipment that increased by 8.6% and contributed 1.4 percentage points and petroleum, chemical products, rubber and plastic products that increased by 3.2% and contributed 0.7 of a percentage point.

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Good data lowers odds of recession

Van der Linde says data from the productive sectors has not been terrible so far, suggesting that industry could make a small positive contribution to overall gross domestic product (GDP), lowering the odds of an economic recession in the fourth quarter of 2023.

“However, with quite a few major data releases for the fourth quarter still due, it is still too early to say what the outcome will be. Port congestion and load shedding worsened considerably in November and remained sporadic throughout the fourth quarter.”

Meanwhile, he points out, the latest manufacturing PMI numbers showed that economic activity picked up modestly in December after remaining subdued for most of 2023.

“Business benefited from less load shedding in December but given that new sales orders remained lacklustre at the end of 2023, indications are that underlying demand for manufactured goods is weak.

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Outlook in 2024 not so great

“Our base case is for the South African economy to narrowly avoid a recession in the fourth quarter of 2023, but growth is expected to remain weak, with the economy forecast to grow by a meagre 0.5% in 2023.”

Van der Linde says South Africa enters 2024 with hardly any economic momentum and real GDP growth is expected to pick up only modestly to reach 0.7% this year.

“Supply side constraints will continue to undermine growth in the first half of 2024, with the peak impact of tighter monetary policy also likely to still weigh on households’ disposable incomes during this time.”