By Thanda Sithole
Manufacturing output, not seasonally adjusted, increased by 1.7% y/y in July, rebounding from a 5.5% y/y contraction (previously -5.2%) in June. This result exceeded the consensus forecast of a 0.7% increase. Seasonally adjusted output volumes expanded by 2.1% m/m after a 0.4% decline in June, signalling a positive start to 3Q24. This aligns with the improvement in the PMI business activity index, which rose to 50.8 points from 36.3 in June. Year-to-date (January to July), output remains lower by 0.4% compared to the same period last year, weighed on by weaker production in the automotive, basic iron and steel, and furniture divisions.
Outlook
The 0.4% year-to-date decline reflects challenging demand conditions due to weak consumer fundamentals and broad-based weakness in private sector fixed investment. However, a modest recovery is anticipated in the near term, although it will likely be uneven. This is indicated by the PMI expected business conditions index, which, despite falling to 61.3 points in August, remains above the 58.7 recorded at the start of the year. Moving forward, a load-shedding free environment, the expected interest rate cuts, and a more stable rand will be critical factors in supporting manufacturing activity.
Selected sector analysis
The 1.7% increase in output was primarily driven by higher activity in five manufacturing divisions, while the remaining five divisions weighed on overall performance. Focusing on the five major divisions, which together account for over 85% of total production, the following increases were recorded:
Limiting total output growth was motor vehicles, parts and accessories, and other transport equipment which declined by 12.1% in July, after declining sharply by 15.6% in June. This reflected an 8.5% decline in motor vehicles production, a 6.2% decline in bodies for motor vehicles, trailers, and semi-trailers, and a 19.4% decline in parts and accessories. YTD the automotive sector is down by 10.4%, consistent with weak demand amid affordability challenges and a high interest rate environment.
