Shocking fall in manufacturing output in December

There was a shocking fall in manufacturing output in December that was larger than expected, while the Absa purchasing managers’ index (PMI) that measures business conditions also declined sharply in January.

According to Statistics SA, seasonally adjusted manufacturing production fell sharply by 1.7% in December compared to the 1.2% month-on-month increase recorded in November. This is not good news for the South African economy and it is another indicator that the president should spend more time on economic growth in his State of the Nation speech tonight.

The sharp decline in factory output in December means production rose by a mere 0.1% in the fourth quarter compared to the third quarter, suggesting that the manufacturing sector hardly grew during this time.

Total manufacturing output was up 0.4% in 2023, following the 0.3% contraction recorded in 2022, pointing to weak domestic demand for manufactured products.

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December 2023 was up 0.7% compared to December 2022

Favourable base effects meant that manufacturing production was up 0.7% in December compared to December 2022. Jee-A van der Linde, senior economist at Oxford Economics Africa, says the outcome was below the consensus forecasts of 0.5% month-on-month and 2.5% year-on-year after industry was adversely affected by a prolonged strike at Transnet in the fourth quarter of 2022.

The largest positive contributors to the annual increase were:

• petroleum, chemical products, rubber and plastic products that increased by 5.3% and contributed 1.1 percentage points
• wood and wood products, paper, publishing and printing that increased by 2.7% and contributed 0.3 percentage points
• food and beverages that increased by 0.9% and contributed 0.3 percentage points.

December’s 1.7% month-on-month decline marks the deepest contraction since the decline of 5.3% recorded in October 2022.

Source: Statistics SA

Van der Linde says seasonally adjusted manufacturing output inched higher by 0.1% quarter-on-quarter during the fourth quarter. Statistics SA noted that six of the ten manufacturing divisions reported positive growth rates over this period.

“The larger than expected drop in December’s seasonally adjusted manufacturing production offsets the 1.2% month-on-month increase in November and implies a tiny positive contribution to total gross domestic product (GDP) at the end of 2023. Overall, underlying local demand for manufactured goods is weak.”

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Absa PMI also fell sharply in January

In addition, he says, Absa purchasing managers index (PMI) dropped sharply to 43.6 index points in January 2024, down from 50.9 in December, indicating a poor start to the year.

“Looking at the two most important sub-indices, the business activity index plunged to 37.1 most recently and the new sales orders index fell to 37.2.”

January’s survey noted that the deterioration comes despite less intense load shedding relative to most of 2023 and is most probably linked to a sharp decline in demand, Van der Linde says.

“A lack of materials and goods required in the production process may also have hampered output. Respondents noted weaker demand than usual, with export orders stuck below 50 for a third straight month.”

The inventories index fell back to 37.7 in January, reaching the lowest level since mid-2020 and Van der Linde says this decrease can be attributed to local harbour issues preventing imported stocks from reaching manufacturers.

Conditions in the manufacturing sector deteriorated massively at the start of 2024 amid weak domestic demand.

Source: BER