C E OMMENTARY

Economics | South Africa E CONOMIC C OMMENTARY 099 October 201
14 M
Manuffacturring Prroduction
Manufaacturing producction declined a
at a slower ratee than expecte
ed in August 




Maanufacturing prroduction contracted by 1,2%
% y‐o‐y in August in line with our forrecast, but the rate of decline was better tthan the marke
et consensus for f ‐
3,22% following a ssharp 8,1% drop in July (reviseed from ‐7,9%). Onn a monthly baasis production
n rose by a seeasonally adjussted 2,2%, maainly booosted by strong output in the ‘basic ironn and steel, non‐ferrous n
metal prooducts, metal p
products and m
machinery’ as w
well as ‘motor vvehicles, parts and acccessories and o
other transport equipment’ inddustries, which
h rose by 16,2%
% m‐
o‐m
m and 16,6% re
espectively. In the three mon
nths to August,, total productiion fell by a se
easonally adjussted 1,44% compared w
with the previou
us three monthhs, with output in eight of the ten maajor industries ccontracting. Thee performance
e of the manu
ufacturing sectoor will remain lacklustre in the moonths ahead. While output growth couldd be boosted by base effeects, impproving global demand and a weaker rannd, this will be offset by weak w
do mestic demand
d. Unnderlying local economic co
onditions rem
main weak. Th
he Reserve Bank B
conntinues to face
e the dilemma o
of striking a ba lance between weak growth and higgh inflation. We
e expect the Re
eserve Bank to ccontinue on itss path of moderrate tighhtening, hikingg by another 0,25 percentaage points in November. This, T
how
wever, will dep
pend on rand m
movements. Table 11 : Manufacturring production August
A
Total maanufacturing produ
uction
July
Forecasts
Y‐o‐y%
% M‐o‐m% (SA) Y‐o‐y% Nedbank y‐o‐y% Markett y‐o‐y%
-1,2
2,2
-8,1
-1,2
-3,2
Source Sttatistics South Africca Comm
ment Group Economiic Unit Jo
ohannes Khosa +227 11 294 1835 Jo
ohannesKh@nedb
bank.co.za Deennis Dykes +227 11 295 6435 DeennisD@nedbankk.co.za 1335 Rivonia Road C
Campus, 1335 Rivonia Road, Sandton, 2196, So
outh Africa oup.co.za htttp://nedbankgro
The annnual rate of decline d
in man
nufacturing prooduction mode
erated to 1,2%
% in August from 8,1% in the t previous month. m
The declline was mainly a result of weak w
output in the ‘wood and a wood prod
ducts, paper, ppublishing and printing’ indusstry, which feell by 11,3% an
nd subtracted 1
1,1 percentage points from th
he headline figu
ure. Weak p roduction in th
he ‘petroleum, chemical produucts, rubber and plastic produ
ucts’ division (which fell by 3,9% and subttracting 0,9 perrcentage pointss) as well as in the ‘glass aand non‐metalllic mineral pro
oducts’ and ‘baasic iron and steel, non‐ferrrous metal pproducts, metal products and machinery’ inddustries, which dropped by 13
3,4% and 3,1 % respectively,, subtracting 0,6 percentage ppoints each, wa
as also responssible for the decline. Outp
put in the ‘motor vehicles, pparts and acce
essories and otther transpoort equipment’ division rose sharply by y 31,7% y‐o‐y, contributing 2,3 percenttage points to the total figure.
On a moonthly seasonaally adjusted ba
asis the 2,2% risse in total prod
duction was driven by stronng output in the t ‘basic iron and steel, nonn‐ferrous meta
al products, metal productts and machine
ery’, ‘motor veh
hicles, parts andd accessories and other transp
port equipm ent’ and ‘electrrical machinery
y’ industries, whhich rose by 16
6,2% m‐o‐m, 16
6,6% and 30,88% respectivelyy, while output in the remaininng seven divisio
ons contracted.. For thee three monthss to August, manufacturing m
output fell by 1,4% q‐o‐q, with w
output in eight of the ten major industries conntracting. A notable n
declinee in producttion was record
ded in the ‘bassic iron and steeel, non‐ferrou
us metal produ
ucts, metal p roducts and maachinery’ industry, which fell bby 5% q‐o‐q, su
ubtracting 1,0 percentage point from the total figure, reflecting the damage of the steel industry labour strike in July. The divisions that contributed positively are ‘food and beverages’, which added 0,4 percentage points as well as ‘furniture and other manufacturing’, which added 0,2 percentage points. Chart 1 : Manufacturing production trends
Y-o-y % change
Manufacturing index
15
125
10
120
115
5
110
0
105
-5
100
-10
95
-15
90
-20
Y-o-y % change
85
Index
-25
80
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Source: Statistics SA
Outlook Manufacturing output is likely to improve off a low base in the months ahead as production normalises following labour strikes in the platinum and steel and engineering sectors in the past few months, and as output in the sectors that supply the export market benefit from better global demand and a weaker rand. The seasonally adjusted Kagiso Purchasing Managers Index rose above the 50 level ‐ which divides expansion and contraction ‐ in September, suggesting some improvement in production activity, particularly in industries that supply the export market in the short term. Domestic‐oriented industries, however, could experience lacklustre output performance as household spending is weighed by poor consumer finances, while production in the sectors that supply construction and infrastructure‐related output could also be contained by weak capital expenditure activity in the private sector. Implications Today’s data, both mining and manufacturing, provide further evidence that the production side of the economy generally remains weak. The outlook for the overall economy for 2014 is still cloudy, with lacklustre domestic demand. The Reserve Bank faces the dilemma of striking a balance between weak growth and heightened inflationary pressures. We believe that the SARB will raise interest rates by another 0,25 percentage points in November, but this will depend on the inflation trajectory and the movements of the rand. Economic Commentary | 09 October 2014 Page 2 of 4 Table 1 : Breakdown of manufacturing production by industry Growth over the 3 months to August 2014
Industries
Y-o-y %
Industries
Q-o-q %
Other manufacturing
7.8
Other manufacturing
Wood preparation
4.9
Beverages
8.3
3.8
Furniture
3.6
Printing
2.8
Radio, TV & professional equipment
3.6
Food processing
2.8
Food processing
1.8
Plastic
2.2
Beverages
1.6
Clothing
1.8
Other food
0.6
Other chemicals
1.7
Motor vehicles
0.2
Special machinery
1.5
Footwear
-0.1
Wood preparation
0.6
Grain mill products
-0.5
Motor vehicles
0.3
Basic chemicals
-0.5
Basic iron & steel
0.3
Other textiles
-0.5
Grain mill products
0.0
Other chemicals
-1.1
Basic chemicals
-0.1
Clothing
-1.1
Other food
-0.4
Dairy products
-1.2
Dairy products
-0.5
-0.8
Petroleum
-1.8
Other textiles
Printing
-2.6
Bodies for motor vehicles
-0.9
Wood products
-2.8
Other non-metallic products
-1.0
-1.4
Paper
-2.9
Total
Total
-3.1
Footwear
-1.7
Plastic
-3.4
Furniture
-2.5
Special machinery
-3.7
Textiles
-2.5
Other non-metallic products
-4.6
General machinery
-2.8
Other fabricated metal products
-5.5
Wood products
-2.8
Electrical machinery
-6.7
Rubber
-3.4
Textiles
-7.5
Publishing
-3.4
Leather
-8.1
Petroleum
-4.7
Metal products
-9.0
Electrical machinery
-4.8
Bodies for motor vehicles
-9.4
Glass
-5.3
Non-ferrous metals
-9.5
Paper
-6.0
Basic iron & steel
-9.9
Vehicle parts & accessories
-6.0
Other transport
-10.6
Other transport
-7.4
Household appliances
-11.1
Metal products
-7.8
Publishing
-12.7
Non-ferrous metals
-8.0
General machinery
-14.8
Other fabricated metal products
-8.3
Rubber
-15.0
Leather
-9.7
Vehicle parts & accessories
-15.0
Radio, TV & professional equipment
-12.1
Knitted clothing articles
-21.4
Knitted clothing articles
-12.7
Glass
-26.5
Household appliances
-25.0
Source: Statistics South Africa & Nedbank calculations Economic Commentary | 09 October 2014 Page 3 of 4 Disclaimer The information furnished in this report (the “report”), which information may include opinions, estimates, indicative rates, terms, price quotations and projections, reflects the existing judgment of the author(s) and the prevailing market conditions as at the date of this report, which judgment and conditions are subject to change without notice, modification or amendment. This report does not necessarily reflect the opinion of Nedbank Limited (“Nedbank”). The information herein has been obtained from various sources, the accuracy and/or completeness of which Nedbank does not guarantee and for which Nedbank accepts no liability. Any prices or levels contained herein are preliminary and indicative only and do not represent bids or offers. These indications are provided solely for your information and consideration. The information contained in this publication may include results of analyses from a quantitative model which represent potential future events that may or may not be realized, and is not a complete analysis of every material fact representing any product. Any estimates included herein constitute Nedbank’s judgment as of the date hereof and are subject to change without any notice. Nedbank and/or its affiliates may make a market in these instruments for our customers and for our own account. Accordingly, Nedbank’s may have a position in any such instrument at any time. Nedbank recommends that independent tax, accounting, legal and financial advice be sought should any party seek to place any reliance on the information contained herein. This report is intended for use by professional and business investors only. It may not be considered as advice, recommendation or an offer to enter into or conclude any transactions. This report has been prepared for general dissemination and information purposes only and may not be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any financial instruments or to participate in any particular trading strategy in any jurisdiction. Any additional information relative to any financial instruments and/or financial products reviewed in this report is available upon request. All rights reserved. Any unauthorised use or disclosure of this report is prohibited. This report may not be reproduced without the prior written consent of Nedbank. The information contained in this note is intended solely for the recipient and may not be distributed by the recipient. All trademarks, service marks and logos used in this report are trademarks or service marks or registered trademarks or service marks of Nedbank or its affiliates
Economic Commentary | 09 October 2014 Page 4 of 4