Statistics South Africa reported today that manufacturing production increased by 0.8% year-on-year (y/y) in June 2012. In month-on-month terms (m/m), the level of seasonally adjusted (sa) production declined significantly by 2.4% – while the Bloomberg consensus forecast was for growth of 0.4% (m/m, sa) and 3.5% (y/y). In May the level of production volumes increased by an upwardly adjusted 4.4% (y/y) and 3.1% (sa) compared to the previous month. The latest figures saw the seasonally adjusted index move more or less back to its April levels.
The 0.8% (y/y) growth was driven by the increase in the petroleum, chemical products, rubber and plastic products division. The division’s production expanded by 4.3 (y/y), contributing 1.1 percentage points (% pts), but contracted by 0.3% (sa) compared to May. The food and beverages division added 0.4% pts by expanding 2.6% (y/y), after last month’s 12.4% (y/y) increase. However, food and beverage producers recorded a 6.4% (sa) decline on a monthly basis. The electrical machinery division declined by 9.8% (m/m, sa).
Compared to the second quarter last year total production volume increased by 2%. The basic iron and steel, non-ferrous metal products, metal products and machinery division contracted by 5.8% (shaving of 1.2% pts); the only division of ten reporting a decline for the period. The food and beverage division added 1.1 % pts and increased production by 6.2%. The motor vehicles, parts and accessories and other transport equipment division grew 8.7% and added 0.9% pts.
The level of production for the second quarter declined by 0.2% (sa) compared to 2012Q1, with half of the divisions reporting negative growth rates for the period. The basic iron and steel, non-ferrous metal products, metal products and machinery division experienced the largest decline. The division knocked off 1.3 % pts of the quarterly figure by contracting 6.2% (q/q, sa). Although demand is under pressure given slower world economic growth and subdued domestic private sector fixed investment, the fact there are monetary incentives for certain large electricity users (some of the companies fall in this category) to reduce output might also play a role. The biggest positive contribution was made by the 5.8% (q/q, sa) expansion of the motor vehicles, parts and accessories and other transport equipment division, adding 0.6% pts to the quarterly figure.
The annualized q/q growth rate of -0.8% (sa) implies that after making the largest positive contribution to GDP growth in the first quarter, the sector is unlikely to contribute positively in 2012Q2.
Outlook
Sources: BER, StatsSA
The graph above sets out the composite index of the Kagiso PMI (sa) and the seasonally adjusted production volume index. The PMI as a leading indicator suggests a slight increase in production could be expected in July with the index increasing to 51. This figure is above the critical level of 50 points – signaling an expansion in the sector. However, given the deteriorating global as well as local economic outlook, manufacturing production growth is likely to remain subdued during the second half of 2012.