11 May 2017
Manufacturing update: Manufacturing sector continued to underperform in Q1.17
Manufacturing production increased by 0.1% y/y in March versus a contraction of 3.7% y/y in February.
It is likely that low base factors accounted for much of the March growth outcome, as the Easter holidays occurred in the month of March in 2016 but fell in April this year.
The March data concludes the sector’s production releases for Q1.17 and therefore provides guidance to the sector’s contribution to GDP. The relevant measure in this regard is the seasonally adjusted three month measure (qqsa), which registered -0.9%.
We therefore estimate that the manufacturing sector may have detracted from GDP, for the third consecutive quarter, by as much as 0.3% from the quarter on quarter seasonally adjusted annualised Q1.17 GDP outcome. This, coupled with the expected contraction in the retail sector, will offset some of the lift provided by the mining and agriculture sectors.
The 0.9% qqsa decline in manufacturing production in Q1.17 was mainly underpinned by a 2.7% qqsa contraction in the petroleum manufacturing division. Based on its 23.58% weighing, this division detracted 0.6% from the headline manufacturing production in Q1.17. Overall, six of the ten manufacturing divisions registered declines in production during Q1.17.
There is scope for some recovery in the manufacturing sector in the coming quarters. Export orientated manufacturers are expected to benefit from the projected lift in both global growth and trade. Advance indications provided by the global manufacturing PMI confirmed the fastest rate of expansion in Q1.17 in six years amid strengthening global demand conditions.
On the domestic front, manufacturers are expected to derive some support from improved market conditions in the allied agriculture and mining industries. The recovery from drought conditions and increased commodity prices should translate to increased activity in the agriculture and mining sectors respectively.