07 Feb 2018

Manufacturing update: Manufacturing production rose in December and over the Q4.17 period

Annabel Bishop

Chief Economist

indicating a positive contribution to GDP

Figure 1: Manufacturing growth vs Absa PMI*
  • Manufacturing production increased by 2.0% y/y in December compared to a 1.5% y/y rise in November. 
  • This December lift occurred mainly on account of the production growth in petroleum product, basic iron, food and motor vehicle divisions which yielded a combined positive contribution of 2.2%.  
  • The rolling three month measure averaged 1.5% on a seasonally adjusted (qqsa) basis compared to 0.8% qqsa in Q3.17. This suggests that the manufacturing sector will make a larger positive contribution to GDP in Q4.17 than the 0.3% contribution in Q3.17. 
  • In 2017, manufacturing production contracted 0.5% y/y compared to a 0.7% y/y rise in 2016. The underperformance was broad based with seven of the ten manufacturing sub-divisions registering either an annual contraction in production or stagnation (see figure 2). Growth, of 2.0% y/y and 3.9% y/y, was limited to the food and basic iron divisions. Together these two sectors account for 43.9% of the headline production index. 
  • The growth in these two sectors could be linked respectively, to the partial recovery in the agriculture sector following the 2015/16 drought, as well as the lift in international commodity prices. 
  • In 2017, the performance of manufacturing production was affected by weak domestic demand conditions and depressed business confidence which in turn has been linked to persistent policy uncertainty. Export orientated manufacturers will have derived some support from the strengthening momentum in global economic activity and trade during 2017 (see figure 4).
  • Advance indications provided by the January 2018 PMI suggested that conditions in the manufacturing sector improved at the start of the year. In particular, the sub-index measuring expectations with respect to future business conditions rose to the highest level since Q1.10. Improved sentiment was linked to more favourable prospects for domestic and external demand.
Figure 2: Year to date industry contributions to manufacturing production
Figure 3: Manufacturing output volume by industry type
Figure 4: World trade