Manufacturing production fell to 0.6% y/y in February, compared to January’s growth of 2.3% (revised down from 2.5% y/y). The February outcome was well below market expectations of 2.7% y/y growth.
Looking at a disaggregation of the data, six of the ten manufacturing divisions made a negative contribution to the headline outcome. The largest contributor to the top line growth figure of 0.6% y/y was the food and beverage category, which yielded a positive contribution of 1.0% on the back of growth of 4.3%. However this was substantially lower than its contribution in January of 2.3% on the back of growth of 9.4%. The petroleum products grouping, made the largest negative contribution to headline growth, falling 2.8% and decreasing the headline outcome by 0.7% (see figure 2), while the basic iron ore and steel products category detracted 0.1% from growth in February after adding 0.7% to the headline number in January.
Although this result is not as favorable as anticipated, the latest Absa Manufacturing Survey for Q1.18 stated that manufacturing business confidence lifted by 13 points to 37 in Q1.18, the best level since Q4.14. A major outcome of the Q1 manufacturing survey was “(a) notable change in sentiment about business conditions going forward”, with the index monitoring expected business conditions in 12 months’ time lifting to its best position in 18 years. “Respondents also indicated that the general political climate was rated as a less serious constraint on current business conditions and future investment outlays compared to recent quarters.”
Looking forward, recent positive developments, including the avoidance of a ratings downgrade by Moody’s and a 25 basis point interest rate cut, should boost private consumption and investment, with forecasts for 2018 having been revised upwards somewhat.
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