SA manufacturing production had a very poor start to 2016, declining much more than expected in January 2016

In January 2016, SA manufacturing production fell by a substantial 1.8%m/m, after rising by a revised 1.9% in December 2015 (monthly data is seasonally adjusted). The market was expecting manufacturing activity to rise by 0.3%m/m in January 2016. On an annual basis, manufacturing fell by a massive -2.5%y/y in January 2016.

The sharp decline in production during January 2016 was extremely broad-based and included a large decline in furniture production (-11.3%m/m), a fall-off in various aspects of food production (for example dairy products fell -8.9%m/m), a slump in beverage output (-6.5%m/m), a fall in publishing (-2.4%m/m), and a -3.4%m/m drop in rubber product production. During the past three months (Nov 2015 to Jan 2016), SA manufacturing fell by -1.1%q/q, hurt by weaker output in most key manufacturing sectors, including food, beverages, chemicals, cement, and motor vehicles.

During 2010, SA manufacturing activity grew by 4.7%y/y, which was obviously a vast improvement on the 13.5%y/y decline recorded in 2009. In 2011, production averaged a more modest rise of 2.8%, with the sector experiencing significant disruptions due to strike activity. For 2012, manufacturing growth averaged a mere 2.3%, which is somewhat understandable given the weakness in the global economy and the extensive mining strikes. In 2013, activity rose by an average of only 1.5%y/y, which is really more stagnation than expansion, with the motor industry heavily disrupted by labour unrest. In 2014, South Africa’s manufacturing production increased by a very disappointing 0.2%y/y. This was despite the Rand/Dollar weakening by 30% over the preceding three years. Clearly, Rand weakness does not automatically translate into increased manufacturing production, especially when the sector is plagued by periodic electricity outages. In 2015 as a whole, South Africa’s manufacturing sector averaged growth of -0.03% for the year as a whole. This is the worst annual performance since the 2009 recession.

The ongoing weakness in South Africa’s industrial output reflects a wide range of factors, which we have highlighted on numerous occasions. There is clearly the risk that the weakness in the manufacturing (and mining) sector leads to increased job losses, which then further weakens the broader business sector, forcing the economy closer and closer to an outright recession. Correspondingly, changes in employment remain one of our prime areas of research in South Africa. Hopefully, the latest developments in South Africa’s political environment, coupled with an urgency to avoid any further credit rating downgrades can ultimately lead to an improved growth outlook.

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