Manufacturing production figures for March show healthy growth of 5,7% in volumes compared with March last year.
This is certainly encouraging at face value and is supported by the uptick in the BMR/Investec PMI in March and April. March completes the first quarter of 2006, which showed growth in volumes of 1,1% from the 4th quarter of 2005, or 4,4% on an annualised basis.
While seven of the ten manufacturing sub-sectors experienced positive quarter on quarter growth, it was really petroleum products, and motor vehicles and transport equipment that contributed significantly to total quarter on quarter manufacturing growth, growing 7,5% and 6,8% on the quarter respectively.
Motor vehicle manufacturers are currently benefiting from very strong domestic demand. They are also insulated somewhat more than other manufacturers from rand strength and foreign competition because of the relatively high import component of inputs for local manufacturers and through favourable industrial policies.
Encouragingly, textiles, clothing, leather, and footwear products, a sector that has experienced a sustained long-term decline in South Africa, showed strong volumes growth of 3,5% on the quarter, albeit in the face of continued falling prices.
The rest of the sub-sectors seem to be continuing to struggle against strong export competition. This certainly causes one to question the perceived resilience of the manufacturing sector.
While semi-durables and durables retail sales growth continued strongly in February on the back of increased credit spending and renewed consumer confidence, manufacturers of wood and paper products, electrical machinery and professional equipment, and furniture were unable to increase volumes from the fourth quarter of 2005.
This gives as clear an indication as any of the continuing mismatch between the productive and consumption sides of the South African economy, a dynamic that is reflected plainly in the burgeoning current account deficit.
Growth in the value of manufacturing sales outstripped growth in volumes by 6,4% in March 2006 compared with March 2005, increasing from R69,18-billion to R77,54-billion. This indicates a somewhat worrying level of manufacturing inflation and could have important consumer demand implications. One suspects that the rising oil price in February and March is beginning to have inflationary impacts and it will be interesting to see to what extent this is passed on to consumers. – I-Net Bridge