12 Jun 2017
Manufacturing update: Manufacturing production contracts in April with base effects weighing on the outcome
Manufacturing production contracted by 4.1% y/y in April following a rise of 0.4% y/y in March.
Higher base factors, linked to the timing of Easter this year versus last year, will have weighed on the outcome.
The April reading is the first update for the Q2.17 period and, at this stage, shows that the momentum in the sector remained negative. In particular, the three month seasonally adjusted measure contracted by 0.3%.
However, production lifted by 2.3% m/m seasonally adjusted in April. Even if production were to remain flat or be slightly negative in May and June, the three month average would turn positive. Based on these estimates, the manufacturing sector could make a small positive contribution to Q2.17 GDP, after having contracted for the prior three consecutive quarters.
Indeed, the manufacturing PMI for May rebounded to 51.5 from 44.7 in April which would suggest a modest recovery in actual production.
The disaggregation of the April data shows that four of the ten manufacturing divisions registered contractions in the three months to April. The largest negative contribution to the 0.3% qqsa decline in headline manufacturing production stemmed from the petroleum, chemical products, rubber and plastic products division (-0.7%) but this was partially countered by a positive contribution from the food and beverages division (0.4%).
Going forward, the manufacturing sector could derive support from the expected synchronised upswing in global growth. The rise in the global PMI, which tracks global growth, has been sustained during H2.16 and Q1.17 (see figure 3) and the recovery in international trade has continued (see figure 4).
On the domestic front, the recovery in the allied agriculture and mining industries should also provide support to the manufacturing sector. In Q1.17, the agriculture and mining sectors were the only positive contributors to GDP, on growth of 22.0% quarter on quarter seasonally adjusted annualised (qqsaa) and 12.8% qqsaa respectively (see figure 5). The improved performance in these sectors respectively was based on the dissipation of drought conditions in parts of the country and the rise in commodity prices.