SA’s fragile economic climate highlighted

SOUTH Africa’s manufacturing contracted by 0.8 percent year-on-year in May, beating expectations, Statistics South Africa (Stats SA) reported yesterday.

The agency attributed the numbers to the 3.5 percent improvement in the food and beverages sector which contributed 0.9 of a percentage point as well as the basic iron and steel, non-ferrous metal products which had grown by 5.2 percent to contribute 1 percentage point.

However, the petroleum, chemical products, rubber and plastic products shed 8.4 percent and contributed -2.1 percentage points.

Stats SA also said that seasonally adjusted manufacturing production dropped 0.3 percent in May compared with April, following the 2.3 percent monthon-month changes in April and -0.6 percent in March.

“Seasonally adjusted manufacturing production increased by 0.4 percent in the three months ended May, compared with the previous three months,” it said.

It said five out of the ten manufacturing divisions reported positive growth rates with the largest contributors being the food and beverages division which grew by 2.6 percent and contributed 0.7 of a percentage point.

The petroleum, chemical products, rubber and plastic products division dropped by 1.8 percent and contributed -0.4 of a percentage point.

Although May’s manufacturing data remained in negative territory, it was better than the 4.5 percent contraction forecast and was also significant improvement from the 4.2 percent year-on-year decontraccline recorded in April, Nedbank’s economic unit said.

Fare better

It said the sector was still expected to fare moderately better later this year, with output rising off this low base as global growth accelerates moderately and international commodity prices continue to drift higher.

It also said current statistics had so far suggested that economic activity in the second quarter remained relatively weak.

“Given the weak economy, decelerating food inflation and subdued global oil prices, the rand remains the key risk to the inflation outlook.

“We believe there are still considerable downside risks to the rand and therefore expect that the Monetary Policy Committee (MPC) will probably leave interest rates unchanged during this year and to possibly start cutting rates early in 2018,” it said.

James Turp, a portfolio manager at Absa Asset Management, said yesterday that although the manufacturing data was better than expected, it was still contracting, adding that the data was an important yardstick for the health of the economy.

“These are not a terrible set of numbers, but highlight the fragile economic climate.

“Going into the MPC meeting next week, the recent weak growth and confidence indicators combined with the developing lower inflation profile mean there is an outside chance we could see a 25 basis point rate cut,” he said.

The data comes as South Africa is in a technical recession after Gross Domestic Product declined 0.7 percent during the first quarter of 2017, following a 0.3 percent contraction in the fourth quarter of 2016.