Danger ahead for South Africa’s economy

Manufacturing is one of South Africa’s most important sectors, but a worse-than-expected decline in July spells trouble for South Africa’s GDP in Q3.

Stats SA said that South Africa’s GDP grew by 0.6% in Q2 2023, with manufacturing and finance driving this growth.

Manufacturing in Q2 saw an industry growth rate of 2.2%, contributing 0.3% to the overall growth of the economy – the most of any sector.

However, with intensified bouts of load shedding and the N3 truck attacks in July, there were fears that the manufacturing sector would be hurt.

“Based on the Absa PMI data for July and August, this impacted supplier delivery times and probably weighed on manufacturing output,” the Bureau for Economic Research said.

Despite the existing concerns, manufacturing production was worse than the economists predicted.

Stats SA said that manufacturing production increased by 2.3% in July 2023 compared to July 2022.

The largest contributors were:

• petroleum, chemical products, rubber and plastic products (6,8% and contributing 1,4 percentage points);

• motor vehicles, parts and accessories and other transport equipment (9,5% and contributing 1,0 percentage point).

Although manufacturing did see year-on-year growth, production is far lower than the 4.5% and 4.8% predicted by economists at Nedbank and the BER, respectively.

In addition, seasonally adjusted manufacturing production declined by 1.6% from June 2023 to July 2023.

This is again far lower than the 0.5% and 0.8% month-on-month increases that economists at the BER and Nedbank predicted, respectively.

However, looking more positively, seasonally adjusted manufacturing production increased by 0.9% in the three months ended July compared to the prior three months. Seven of the 10 divisions reported a positive growth rate during the period.

The biggest contribution was made by the basic iron and steel, non-ferrous metal products, metal products and machinery division (2.7% and contributing 0.6 of a percentage point).

Seasonally adjusted manufacturing sales also increased by 1.2% month-on-month. This followed month-on-month changes of -2.7% in May and -0.4% in June.

Nevertheless, seasonally adjusted manufacturing sales decreased by 1.4% in the three months ended July 2023 compared to the three prior months.

The biggest contributor to the decline was the petroleum, chemical products, rubber and plastic products division (-9.1% and contributing -1.9 percentage points).

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