Manufacturing production increased by 5.8% year-on-year (y-o-y) in July 2012, as reported by Statistics South Africa (StatsSA) on Tuesday. The seemingly strong rebound from June’s 0.9% y-o-y growth (revised upwards from 0.8%) was mainly caused by the sharp decline in production noted in July last year. Manufacturing production plummeted by 5.8% month-on-month seasonally adjusted (m-o-m, sa) in July 2011 as a result of strikes in the metal, petroleum, chemicals and packaging sub-sectors. The monthly production volume figure therefore gives a better indication of the actual performance of the sector: in July production contracted by 1.1% (sa) compared to June 2012. The consensus forecast was for a smaller drop of 0.4% in manufacturing production over the month of July. The y-o-y growth of 5.8% is furthermore lower than the 6.2% consensus forecast that already took account of the possible large base effect.
As expected, the sub-sectors noting the highest yearly growth figures were those most affected by the strikes in July last year, pointing towards base effects as a cause of growth and not necessarily actual production improvement. The petroleum, chemical products, rubber and plastic products sub-sector grew by 6.9% y-o-y and thereby contributed 1.7 percentage points (% pts) to the yearly figure. However, compared to June 2012, the sub-sector contracted by a substantial 2.0% (m-o-m, sa). The basic iron and steel, non-ferrous metal products, metal products and machinery sub-sector expanded by 9.0% compared to July 2011 and added 1.7% pts to the 5.8% y-o-y growth. Compared to the previous month, production volumes in this sub-sector declined by 0.3% (sa). The food and beverages sub-sector grew by 7.4% y-o-y, thereby adding 1.3% to the overall figure. The largest decline in production was reported in the furniture and other manufacturing sub-sector, contracting 5.7% y-o-y and 4.8% m-o-m (sa). The only other sub-sector to note a decline on a yearly basis (1.0% y-o-y) was textiles, clothing, leather and footwear. On the other hand, on a monthly basis only three of the nine sub-sectors indicated growth in production: food and beverages (2.3%); textiles, clothing, leather and footwear (0.6%) and glass and non metallic mineral products (0.6%).
July constitutes the first month of the third quarter and the m-o-m decline noted does not bode well for manufacturing’s contribution to GDP in 2012Q3. While in the first quarter manufacturing production still expanded by 7.7% quarter-on-quarter (seasonally adjusted annualised rate), the sector contracted by 1.0% in 2012Q2 and shaved off about 0.2% pts of overall growth.
Outlook
The graph below shows the quarterly manufacturing production data, as released by StatsSA, and the net balance[1] reporting increased/declined production volume growth as captured by the BER’s quarterly manufacturing survey. The 2012Q3 survey results indicate that although production volumes are still higher than levels experienced a year ago, the pace of growth is expected to continue to moderate throughout the remainder of the year. This deceleration combined with the Kagiso Purchasing Managers Index hovering around the critical 50-point mark in recent months and thereby not signaling a clear expectation of expansion in the sector, implies that production is projected to remain weak throughout the rest of 2012.
[1] The BER calculates the net balance statistic by subtracting the percentage of respondents replying that current production volumes have declined compared to a year ago, from the percentage replying that current production volumes have increased compared to a year ago