Business

Rot sets into manufacturing sector

Staff Reporter

November manufacturing data released on Thursday reflects the reality of what could be a fairly fast slowdown in South Africa's economy.

November manufacturing data released on Thursday reflects the reality of what could be a fairly fast slowdown in South Africa’s economy in the early parts of 2009 as the country’s second biggest sector hits its worst levels in 10 years.

Thursday’s data shows that the physical volume of manufacturing in South Africa in November declined by -4,4% year-on-year (y/y) after a revised decrease of 1,8% (-1,6% y/y) in October and is at a concerning -12% on a seasonally adjusted and annualised basis.

The last time the annualised numbers were this bad was in January 1998, when they struck -12,4% on a seasonally adjusted annualised basis. However, unlike that period in 1998, the decline has been faster, coming off growth of 15% in the second quarter of this year.

All in all it is not good news for the economy and does raise the spectre of potential job losses because the global slowdown also feeds into it.

For example, manufacturing production drops of 6% in Germany have been called a “nightmare” by their commentators, which will filter into the local market as we manufacture a high proportion of heavy goods.

Basic iron and steel, non-ferrous metal products, metal products and machinery make up 22,4% of the local index and that is also where the problems are coming in.

The seasonally adjusted data for basic iron and steel shows that this sector dropped a marked 28,2% between September and November when compared with the preceding three months.

It contributed a full -1,6 percentage points to the seasonally adjusted percentage change in total manufacturing production.

The data shows that the seasonally adjusted manufacturing production for the three months ended November 2008 decreased by 3,1% compared with the previous three months.

But the rot has also set in among other sectors, like motor vehicles parts and accessories, which dropped -7,7% quarter on quarter.

Petroleum, chemical, rubber and plastic products also fell on a seasonally adjusted basis by -4,4% from the quarter before. This sector makes up 22,5% of the total and contributed -1 percentage points to the decline.

Added to the above can be the fact that cement sales in Southern Africa declined 20,2% y/y in November to 1,158 million tons, according to data from the Cement and Concrete Institute.

The problems are clearly widespread, also borne out by the fact that the estimated consumption of electricity in South Africa in November 2008 declined 5,7% y/y compared with -1,4% y/y in October 2008.

Growth in manufacturing in December is not likely to emerge, evidencing the fact that the local economy is slowing very quickly and fears of a technical recession in the first half have been aired. They may become more widespread when all of the above is plugged in and interpreted.—I-Net Bridge

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