The dip in South Africa’s manufacturing production growth to 5,2% year-on-year (y/y) in March from 7,2% in February is still above the 2006 average of 4,8% y/y.
Volume growth was at just 4,5% in December last year and the growth in 2007 continues to reflect strong growth.
The fact that the manufacturing sector growth is still strong is also reflected by the sales figures, where a dip to 20,6% y/y was recorded from the 24,8% increase in February, but versus the 13,1% y/y average recorded in 2006 as a whole. The increase in March on the sales side also brings the average quarterly performance above 20% y/y to an impressive 22,1% y/y.
Furthermore, seven of the ten manufacturing divisions also showed minor gains over the month.
The manufacturing sector makes up 16% of the GDP basket and on the whole, the manufacturing performance is positive news for growth prospects in SA’s economy.
However, higher interest rate and rising prices do pose a concern.
“Suppliers to the retail sector should experience slower conditions as consumers observe more caution in the face of rising prices and higher interest rates,” explains the Nedbank economic research unit.
“Sectors benefiting from construction activity and infrastructure spending, notably manufacturers of cement and other building supplies from basic iron and steel products to glass products should continue to experience strong demand.
“However, capacity constraints may limit the extent to which manufacturers are able to expand,” they add.
The central bank meets again in June to decide on interest rates after adopting an unchanged stance at the previous two meetings.
“The slower growth in manufacturing production may make the Reserve Bank a bit more comfortable over maintaining a stable interest rate policy at their next monetary policy meeting in June. However, the MPC is likely to focus more on the softer growth in both vehicle sales and consumer credit. These factors, in conjunction with a strong rand as well as a moderate pull-back in oil prices, have released some of the pressure on the Reserve Bank to tighten policy in response to tighter CPIX inflation in the short term,” conclude the analysts. ‒ I-Net Bridge