12 Mar 2018

Manufacturing update: Manufacturing production lifted 2.5% y/y in January 2018, driven by food and beverage production

Annabel Bishop

Chief Economist

Figure 1: Manufacturing growth vs ABSA PMI*
  • Manufacturing production lifted in January to 2.5% y/y, following a 1.8% y/y (revised downwards from 2.0%y/y) rise in December. In line with the market consensus.
  • The largest contributions to the headline manufacturing production outcome for January stemmed from the food and beverages and the basic iron and steel, non-ferrous metal products, metal products and machinery categories, which grew 10.1% and 4.3% respectively, in turn yielding positive contributions of 2.5% and 0.8%to the headline manufacturing figure (see figure 2).
  • All sub-components of the food and beverage category increased on a year ago, primarily on the back of base effects as a result of the recovery from the drought. Notably the ‘other food products’ category (includes sugar and processed goods) which has the highest weighting in the food and beverage basket grew by nearly18% y/y.
  • The petroleum, chemical products, rubber and plastic products grouping, made the largest negative contribution to headline growth, dropping -3.2% and reducing headline growth by 0.9%
  • Results from the latest ABSA PMI survey for February 2018 reflect an improvement in manufacturing sector conditions, with the PMI Index moving into expansionary territory, for the first time since May 2017. Business activity climbed notably, and additionally respondents were considerably more positive about conditions going forward, with the index tracking expected business conditions lifting 6.3 points in February from January’sreading (see figure 1).
  • The domestic manufacturing sector also continues to derive support from the upturn in global manufacturing and the improvement in international trade, with the global PMI indicator reaching highs last seen in 2011.(see figure 4). Additionally, recent petrol and diesel price cuts should feed through indirectly into producer price inflation, easing cost pressures for manufacturers.
Figure 2: Industry contributions to manufacturing production
Figure 3: Manufacturing output volume by industry type
Figure 4: Global manufacturing PMI versus SA manufacturing PMI