Manufacturing, the GDP killjoy, at its worst since 1960

The killjoy in South Africa’s economy is the manufacturing sector, which has just reached its worst level since 1960.

According to data released on Tuesday, South Africa’s manufacturing sector is not only in a recession, it is dropping at rates last seen before television had even been introduced into the country.

Manager of GDP at Statistics South Africa, Kedibone Mokone, confirmed that manufacturing was at a worst level since 1960.

According to Tuesday’s data, manufacturing dropped a mammoth -21,8% quarter-on-quarter (q/q) seasonally adjusted annualised from the -9,4% in the third quarter and contributed -3,5 percentage points to the total q/q drop of -1,8%. Two consecutive quarters of negative growth is a recession. Manufacturing had surprised with growth of 14,3% in the second quarter.

The next highest contributor to the drop was the -0,1% by electricity, gas and water.

It is, in fact, so bad that if manufacturing were excluded, the q/q performance would have been a sunny, palatable 3% q/q.

Head of economic statistics at Stats SA, Rashad Cassim, explains that the problem relates to the magnitude and contribution of manufacturing.

The data showed that manufacturing made up 16% of South African industries in the fourth quarter, the second highest after the 20,1% for finance, real estate and business services. The next biggest was wholesale and retail trade, hotels and restaurants at 13,6%.

Due to the manufacturing weighting, the secondary sector of South Africa’s economy added a negative value of 15% to growth in the fourth quarter.

The primary sector added 5,9% and the tertiary sector 2,4%, in contrast.

Manufacturing dropped -4,8% year-on-year (y/y) in the fourth quarter from a 3,1% y/y increase in the third quarter.

On this basis, agriculture and construction were the saving grace for y/y GDP as they lifted 15,4% and 12,2%, with total y/y unadjusted GDP at 1,0% in the fourth quarter from 3,0% in the third.

However, of concern is that mining and quarrying even surpassed manufacturing on a y/y basis in the fourth quarter as it measured -4,9%.

But the seasonally adjusted real value added by the primary industries increased 5,9% during the fourth quarter compared to the third quarter. Mining and quarrying lifted 0,4% q/q saa from the -8,8 q/q in the third quarter.

GDP data increases chance of rate cut
The latest data has increased the chance that South Africa’s Reserve Bank (SARB) will lower interest rates before its next scheduled meeting in April, according to Old Mutual Investment Group SA.

“Depending on this week’s January inflation data, the SARB could announce such a decision by the end of the week,” said Old Mutual economist Rian le Roux.—I-Net Bridge, Sapa

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