Manufacturing output falls sharply and unexpectedly in March

Manufacturing output fell sharply and unexpectedly in March as overall demand for manufactured goods remains weak. Manufacturing production decreased by 6.4% in March 2024 compared to March 2023.

The sharp decline in South Africa’s factory output in March means production decreased by 1.0% in the first quarter of 2024 compared to the fourth quarter of 2024, suggesting that the manufacturing sector contracted during the period.

Jee-A van der Linde, senior economist at Oxford Economics Africa, says a steep decline in the production of motor vehicles and associated products and metals and machinery explains most of the weakness in March.

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According to Statistics SA, seasonally adjusted manufacturing production plummeted by 2.2% in March compared to a 1.0% decrease recorded during February. On an annual basis, manufacturing output was down by 6.4% compared to an increase of 4.0% in February.

“While we anticipated overall production would ease in March, the latest outturn is much weaker than expected,” Van der Linde says.

Negative contributors to annual decline

The largest negative contributors to the annual decline were:

• motor vehicles, parts and accessories and other transport equipment (-25.9% and contributing -2.7 ppts)
• basic iron and steel, non-ferrous metal products, metal products and machinery (-9.0% and contributing -1.9 ppts)
• petroleum, chemical products, rubber and plastic products (-3.9% and contributing -0.8 ppt).

Five of the 10 manufacturing divisions reported negative growth rates during the first quarter of 2024. The largest negative contributions came from:

• motor vehicles, parts and accessories and other transport equipment (-14.9% and contributing -1.5 percentage points)
• basic iron and steel, non-ferrous metal products, metal products and machinery (-3.1% and contributing -0.6 of a percentage point).

The largest positive contributions were made by:

• food and beverages (2.7% and contributing 0.6 of a percentage point) and
• petroleum, chemical products, rubber and plastic products (2.6% and contributing 0.5 of a percentage point).

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Increase in manufacturing sales

Seasonally adjusted manufacturing sales increased by 0.1% in the first quarter of 2024 compared to the fourth quarter of 2023. The largest positive contributions were made by:

• food and beverages (5.6% and contributing 1.3 percentage points) and
• petroleum, chemical products, rubber and plastic products (4.3% and contributing 0.9 of a percentage point).

The largest negative contribution was made by the motor vehicles, parts and accessories and other transport equipment division (-8.6% and contributing -1.5 percentage points).

The sharp decline at the end of Q1 marks a multi-month low in both monthly and annual terms

Van der Linde says the larger than expected drop in March’s seasonally adjusted manufacturing production implies a negative contribution to total gross domestic product (GDP) at the start of 2024.

“It also means that the risk of a quarterly contraction in the first quarter has increased. That said, much will depend on the outstanding economic data releases for March. Although loadshedding was not particularly pronounced during the final month of the first quarter, the latest data confirms our view that overall demand for manufactured goods remains fundamentally weak.”

Meanwhile, no load shedding was implemented during April, which supported business conditions throughout South Africa’s factory sector and suggests a better start to the second quarter of 2024, he says.

“In any event, we estimate that the economy grew by 0.2% in the first quarter of 2024 compared to the previous quarter and we retain our below-consensus real GDP growth forecast of 0.7% for 2024.”