SA manufacturing production recorded another encouraging increase in May 2016

In May 2016, SA manufacturing production rose by an encouraging 1.6%m/m, after increasing by 0.8% in April 2016 (monthly data is seasonally adjusted). On an annual basis, manufacturing increased by 4.0%y/y in May 2016, which is the highest annual rate of growth since July 2015. Overall, the level of production (seasonally adjusted) is now at its highest level since September 2008.

The increase in production during May 2016 included sharp increases in clothing, chemicals, rubber products, wood and wood products, glass, iron and steel, and vehicle production. These increases were partially offset by very moderate declines in food production. Overall, the monthly increase was relatively broad-based.

During the three months from March 2016 to May 2016, SA manufacturing rose by 1.0%q/q. Eight of the ten manufacturing divisions reported positive growth rates over this period with the largest contributions to the 1.0% being from motor vehicles, parts and accessories and other transport equipment (9.5% and contributing 0.6 of a percentage point). The improvement in manufacturing in May 2016 together with the improvement in mining in April 2016 suggests that perhaps SA GDP could record positive growth in Q2 2016, helping SA to avoid a technical recession. It needs to be stressed that this is a tentative forecast/suggestion. We need a lot more data to make a more definitive forecast of SA GDP growth in Q2 2016.

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 1.4%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 -0.04% for the year as a whole which was the worst annual performance since the 2009 recession, and signalled that the sector experienced stagnation or a low intensity recession. The most recent improvement in production is encouraging but still not enough to change the established weak and stagnant trend.

Download the presentation slides

Please follow our regular economic updates on twitter @lingskevin