Johannesburg — THE outlook of South Africa's manufacturing production is subdued owing to the risk of load shedding, uncertain global growth, flat commodity prices and constrained domestic consumer demand.
The latest data from Statistics South Africa indicates that annual output came out worse than markets expected in September.
Factory output contracted by 2,4 percent year-on-year (y-o-y) in September after shrinking by 1,8 percent in the previous month.
On a seasonally adjusted month-on-month (m-o-m) basis, production shrank severely to 2,4 percent from growth of 1,9 percent.
The main drag came from the basic iron and steel, non-ferrous metals, machinery, petroleum, chemical products, rubber and plastic products.
There was also a drop in the motor vehicles, parts and accessories as well as other transport equipment categories.
Nedbank's Economic unit noted that furthermore, the Absa/ Bureau for Economic Research (BER) Purchasing Managers' Index (PMI) remained below the 50- point level for the third consecutive month in October, suggesting poor manufacturing activity for the coming months.
"Anticipated growth for the year is still weak as the local and global economic environment remains subdued," Nedbank stated.
"The risk of load-shedding and weak labour market also signal minimal recovery for the sector in the short- to medium-term," the bank's economic unit added.
The company noted global PMIs released last week continued to reflect lacklustre manufacturing conditions across all the major industrialised and developing countries, painting a bleak picture for global prospects.
Mpho Tsebe, economist at Rand Merchant Bank (RMB), said the declining manufacturing output also added the precarious growth outlook for the South African economy.
Tsebe said the manufacturing data indicated that the sector would subtract 0,5 percentage points from the third quarter (3Q) 2019 gross domestic product (GDP) after adding 0,3 percentage points to growth in 2Q 19.
This indicates that 3Q 19 GDP growth will slow from the 3.1 percent quarter-on-quarter recorded in 2Q 19.
Absa economists described the September manufacturing output data as "quite disappointing."
The financial house, however, stated that positively, the Absa manufacturing PMI had improved slightly in October to 48,1 from 45,1 in September.
"This perhaps suggests some bottoming out," Absa stated.
Manufacturing is South Africa's fourth-largest industry.
It contributes 15 percent to GDP and accounts for more than 13 percent of jobs.
The food and beverages division is the most important player in the industry, contributing 25 percent to total manufacturing activity.