Total manufacturing output (not seasonally adjusted) declined by 0.7% year-on-year in November, after declining by 8.5% year-on-year in October, reports financial services provider FNB.

Senior economist Thanda Sithole explains that the slip partly reflects the unfavourable base effects of the latter part of 2020 when the manufacturing sector ramped up production.

“Encouragingly, seasonally adjusted manufacturing output grew by 3.7% month-on-month in November, after contracting sharply by 5.2% month-on-month in October,” he says.

This aligned with the manufacturing purchasing managers index (PMI) business activity index, which increased to 53.6 index points in November from 46.1 in October.

The latest PMI business activity reading for December was 48.7, indicating a likely monthly contraction (or a material growth moderation) in manufacturing output in December.

Nonetheless, Sithole says FNB’s preliminary estimates are for modest output growth of 1.4% quarter-on-quarter for the fourth quarter of 2021, following a contraction of 4.2% quarter-on-quarter in the third quarter of the year.

“This would corroborate our current view that gross domestic product rebounded mildly in the fourth quarter of 2021, after unexpectedly contracting by 1.5% quarter-on-quarter in the third quarter,” he says.

OUTLOOK

Despite the incomplete recovery, yearly manufacturing output growth was likely stronger at about 7.6% in 2021, after contracting by 12.3% in 2020, FNB data shows.

“Our view is that the output recovery should continue, but the growth rate will likely moderate in 2022. There are several headwinds faced by manufacturers, including higher input cost, an unresolved electricity crisis and problematic but improving global supply chain disruptions,” says Sithole.

Manufacturing output also faces constrained domestic demand owing to further interest rate hikes and a rising unemployment rate.

In terms of subsector performance in November, FNB notes that the moderate decline in manufacturing output was primarily driven by the petroleum, chemical products, rubber and plastic products subdivision which contracted by 13.6% year-on-year in November, after contracting by 15.2% year-on-year in October.

“[This] shaved off 3.1 percentage points from total manufacturing output growth,” he points out.

Other large manufacturing subdivisions contributed positively to manufacturing output growth, effectively counteracting the more considerable negative contribution from the petroleum, chemical products, rubber and plastic products subdivision.

Specifically, the sub-divisions of basic iron and steel, nonferrous metal products, metal products and machinery grew by 4.4% year-on-year in November, after contracting by 14.6% year-on-year in October.

Wood and wood products grew by 6.7% year-on-year, following growth of 4.6% year-on-year in October; while food and beverages grew by 1.9% year-on-year, rebounding from a 3.2% year-on-year contraction in October.

Also, the motor vehicles, parts and accessories and other transport equipment subdivision posted 0% growth – reflecting a significant improvement from a 13.2% year-on-year contraction in October, Sithole concludes.