Manufacturing output contracts 3.6% y/y in Feb

South Africa’s manufacturing output contracted by 3.6% year-on-year in February.

The largest contributors to the decline were the petroleum, chemical, rubber and plastics and food and beverages sectors.

Motor vehicles, parts and accessories was the only sector to contribute positively to production in February.

On a seasonally adjusted month-on-month basis, production growth fell by 0.4%.

“Much of the monthly deterioration was driven by a sizable 4.4% month-on-month contraction in petroleum, chemical, rubber and plastics production, which contributed more than one percentage point to the monthly deterioration,” BNP Paribas Securities South Africa economist Jeffrey Schultz said on Tuesday.

Encouragingly, however, production in the basic iron and steel and nonferrous metals sector rose 1.4%, while the production of motor vehicles, parts and accessories increased by 5.4% in February.

Schultz said the poor performance of manufacturing activity in the first two months of the year was disappointing and did not tally with the improvement observed in key manufacturing purchasing managers indices in recent months.

“While we would still expect to see an improvement in manufacturing production growth in the coming months aided by higher commodity prices and a bounce back in the agriculture sector [after] last year’s drought, our expectation for a more positive contribution from the supply-side of the economy to the first-quarter gross domestic product growth may have to be toned down,” he said.

Manufacturing Circle executive director Pippa Rodseth said the contraction in manufacturing output was alarming, given that the manufacturing sector is the engine of the South African economy.

“This number does not reflect recent economic and political developments, including the ratings downgrades by Fitch and Standard & Poor's, continued political tensions at home and global economic volatility," she added.

The latest statistics are contributing to the Manufacturing Circle's rising concern over the state of manufacturing in South Africa, especially in terms of jobs in the sector.

However, Rodseth said that hand-wringing would achieve nothing.

“The Manufacturing Circle has devised a number of strategies for reversing the decline in the sector and we need to intensify our efforts to win support from industry, government and labour. If we can succeed in restoring the manufacturing sector to its rightful place in the economy, we can create one-million more jobs. We cannot afford to fail,” she noted.