The reopening of the Toyota South Africa Motors (TSAM) car factory in Prospecton, Durban, mid-August after four months of halted production due to damages caused by floods has boosted manufacturing production in South Africa.
However, manufacturing activity is expected to lose momentum towards the end of the third quarter and the beginning of the fourth quarter due to intensified power cuts during the period and the disruption at the South African ports.
Data from Statistics South Africa (StatsSA) yesterday showed that manufacturing production surprised on the upside in August, rising by 1.4% from a year ago, buoyed by the automotive sector.
This was the second straight month of increases following an upwardly revised 3.9% year-on-year rise in July, beating market expectations of a 0.7% contraction in August.
Indeed, electricity production and consumption increased by 5.5% and 6.0% month-on-month in August, respectively, following declines of 3.4% and 3.8% in July when load shedding was ramped up to Stage 6.
StatsSA said the largest positive contributions came from the manufacture of motor vehicles, parts and accessories and other transport equipment; and basic iron and steel, non-ferrous metal products, metal products and machinery.
StatsSA director of industry statistics Nicholas Klassen said that six of the 10 manufacturing divisions recorded a rise in activity, with the automotive division making the biggest positive impact on growth.
“The automotive division increased production by 21.2% year-on-year, with the manufacturing of motor vehicles drawing most of the growth,” Klaasen said.
“Four manufacturing divisions recorded year-on-year decreases in production, with the food and beverages the largest negative contributor.”
On a seasonally adjusted monthly basis, manufacturing output grew by 2.1% in August compared with July, the most in seven months, topping market forecasts of a 0.8% increase
This followed month-on-month decreases in both July and in June.
In spite of this growth, the overall contribution of the manufacturing sector to the third quarter gross domestic product (GDP) growth could be constrained as the severe and more frequent load shedding that emerged towards the end of the third quarter likely affected output.
FNB senior economist Thanda Sithole said while they expected manufacturing activity to rebound in the third quarter following a 5.3% quarterly decline due to load shedding and flooding, the rebound was likely to be limited.
“We are particularly concerned about the severe impact of load shedding in September and at the start of the current quarter,” Sithole said.
“Moderating input costs, easing supply chain pressures, and still resilient domestic demand could provide some support. However, headwinds, including moderating external demand, could be more forceful than tailwinds.”
Meanwhile, the declaration of a force majeure at South African ports by Transnet due to the workers strike could also provide challenges for the manufacturing sector due to supply-chain disruptions.
Investec economist Lara Hodes said that advance indications provided by September’s Absa PMI survey results were already pointing to a notable decline in business activity, which would have weighed heavily on production.
“Lacklustre export potential combined with a muted domestic demand environment do not bode well for the manufacturing sector in the near term,” Hodes said.
BUSINESS REPORT