World Economy

S. Africa’s Manufacturing, Mining Output Drops

S. Africa’s Manufacturing, Mining  Output DropsS. Africa’s Manufacturing, Mining  Output Drops

Dismal data showing both mining and manufacturing output contracted on an annual basis in August, highlights the continued vulnerability of South Africa’s productive sectors.

According to figures published by Statistics SA on Thursday, manufacturing production contracted by 1.2% year on year in August while mining output fell by 10.1%, the latter mainly as a result of a fall in the production of platinum group metals.

Though factory output was up by 2.2% month on month, helped by strong growth in the basic iron and steel, machinery, and transport equipment categories, when viewed over the three months to August, output in eight of SA’s 10 major industries contracted.

Over this period, total manufacturing production fell by a seasonally adjusted 1.4% compared with the previous three months.

“(Thursday)’s data, both mining and manufacturing, provide further evidence that the production side of the economy generally remains weak,” said Nedbank economist Johannes Khosa.

He believed that the manufacturing sector’s performance was likely to remain lackluster in the months ahead.

On the one hand, Khosa expected manufacturing output to improve slightly off a low base as production normalizes following labor strikes in the platinum and steel and engineering sectors.

Those sectors that supply the export market should also continue to benefit from better global demand and a weaker rand, he said.

This view is supported by the slight improvement in the Kagiso Purchasing Managers Index, which rose above the 50 level (which denotes an expansion) in September, climbing to 50.7 index points from 49 in August.

This was the first time in five months that the index had breached the 50-point mark.

It suggests some improvement in production activity is likely down the line, particularly in industries that supply the export market.

On the other hand, Khosa feared that this improvement could be offset by poor performance by SA’s domestic-oriented industries given the softness in domestic demand as a result of the weakness in household finances.

The slowdown in private fixed investment activity is also likely to continue to weigh on sectors involved in construction and supplying infrastructure-related goods, Khosa added.

In a statement earlier on Thursday, lobby group, the Manufacturing Circle, highlighted the fact that only 18% of manufacturers are benefiting from the government’s local procurement initiatives.

SA’s manufacturers have been “hugely supportive” of these policies, according to executive director Coenraad Bezuidenhout, but in many instances they were not being adhered to by the government.