Manufacturing production declines for 9th consecutive month

Manufacturing output contracted for the ninth consecutive month with Statistics South Africa on Tuesday reporting a 2.1{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} year-on-year decline in volumes for February 2020.

Production declined by 2.3{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2} in February, compared to January. For the three months ending in February, production volumes decreased 2.2{e93887a69cdd95d753f466db084bbc3aa0067124675315461d28d68a72842cc2}. “Eight of the 10 manufacturing divisions reported negative growth rates over this period,” the report from Stats SA read.

The largest negative contributions for the year’s figures are attributed to basic iron, steel and metal products, followed by wood, paper, publishing and printing products and the clothing and textiles industry.

Food and beverages was the largest positive contributor to February’s figures.

FNB economist, Geoff Nölting, noted that the food and beverages sector has historically been resilient. “In fact, since 2017, the food & beverages division has only contracted in three months on an annual basis,” Nölting said.

“The outlook for the manufacturing sector remains bleak, particularly in the clothing, footwear & textiles, and motor vehicle parts and accessories subsectors.

“This is due to disruptions in global supply chains and strain in the domestic labour market as employment and income growth are expected to come under severe pressure amid stringent lockdown measures,” Nölting added.

The Absa Purchasing Manager’s Index for the first quarter of the year, reflected a contraction in manufacturing activity. The most recent PMI for April shows that business activity in the sector fell to a record low, Bloomberg reported. With government instituting a nation-wide lockdown to slow the spread of Covid-19, most industries had to halt operations, except for a few deemed as essential services such as pharmaceuticals.

Marique Kruger, economist of the Steel and Engineering Industries Federation of Southern Africa (SEIFSA), said that the declining output is “worrisome”. “The poor performance compounds the multiplicity of challenges faced by local businesses,” she said.

Kruger however noted that the assistance government and local banks were providing through funding and loan packages would help cushion the impact of the pandemic on businesses. SEIFSA has encouraged its members to make use of the assistance to improve their cashflows and restart production process.