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South African Manufacturing Posts Strong Pick Up

James Boston
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South African Manufacturing Posts Strong Pick Up

South African industrial activity has posted a significant turnaround based on the latest data released for the month of September. The year on year Manufacturing Production number revealed a strong positive surprise to markets by coming in at 8.0% growth when measured year on year, the expectation was for a further fall of around -0.9% following the August reading of -1.0%. The month on month figure is now showing at 4.0% growth, this comes on top of the prior month’s 2.55% expansion and compares to a market analyst consensus for a fall of -1.3%.

The pick up in the manufacturing sector was not altogether unexpected, the magnitude and timing of the turnaround however is where the positive surprise is emanating from. South Africa spent much of the early part of this year mired in a series of large scale industrial disputes, although these were predominantly based around the mining sector they effectively shut down a significant part of the country’s industrial sector as raw material supply dried up. The concern, which appears not to have materialised, was that the international buyers of South Africa’s manufactured goods would find alternative sources of supply during the period of no shipments and that these new suppliers would displace the South African manufacturers on more than an interim basis.

Today’s strong rebound in the industrial sector will be very welcome by the South African authorities due to the deteriorating economic outlook that faced the country. Although very narrowly avoiding a technical recession based on the last two quarters GDP readings, South Africa is facing a number of economic challenges including unemployment above 25% and mounting public debt. The government has slashed this years growth forecast from 2.7% to just 1.4% and the Moody’s rating agency has recently followed it’s peers in downgrading the country’s status to investment grade. The manufacturing pick up will assist the country get back on a growth track but this currently faces further risks from a weakening global economy and domestic energy shortages.

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