In September 2011, SA manufacturing production rose by a modest 0.2%m/m (seasonally adjusted), compared with an increase of 8.1%m/m in August. The September reading was a little ahead of market expectations, although the consensus forecast was based on a very small sample survey.
On an annual basis, production jumped to an impressive 7.7%y/y, up from 5.9%y/y in August 2011 - however the annual rate of change was flattered by the low base established in September last year relating to the severe strike activity in August/September 2010.
SA manufacturing data has been extremely volatile during the past couple of years, heavily impacted by global economic developments, the world cup, changes in the value of the Rand and strike activity.
For 2010 as a whole, SA manufacturing activity grew by 4.8%y/y, which was obviously a vast improvement on the 13.4%y/y decline recorded in 2009. Year-to-date production is up a modest 2.6% compared with the corresponding period in 2010.
Overall, manufacturing output remains well below the peak level recorded in early 2008 and appears to have lost momentum. Crucially, production declined by 0.1%q/q in Q3 2011, compared with a decline of 2.2%q/q in Q2 2011 and a rise of 4.0%q/q in Q1 2011. The negative performance in Q3 2011 will, once again, dampen the quarterly GDP reading.
As mentioned above, SA’s manufacturing data has been extremely volatile recently, making it more difficult to ascertain the underlying trend. However, a range of recent economic indicators confirm that SA manufacturing activity has been losing momentum during 2011, especially during the past 6 months. These include a slump in the Kagiso PMI (which is currently only fractionally above the key 50 index level), a moderation in capacity utilisation after reflecting a welcome rise in 2010, and a slump in business confidence within the manufacturing sector, especially in Q3 2011.
The weak global economic environment, especially in the Euro-area is clearly aggravating the situation. While we don’t expect the manufacturing sector to return to severe recession conditions, it will struggle to gain any real momentum without an improvement in the global economy and/or a revitalisation of the domestic economy in the form of increased investment activity and employment growth. The risks are currently to the downside.
Download the presentation slides