Nedbank: Manufacturing production

10 Jun.

Nedbank Economic Commentary: Manufacturing production – April 2011.

Manufacturing output slows sharply on base considerations and seasonal factors.

• Manufacturing production fell by a sharp 3,7% m-o-m in April, bringing the year-on-year increase down to 0,4% from a downwardly revised 4,9% in March. The market expected output to increase by 5% y-o-y. 􀀟 Over the month, output in 8 of the 10 major manufacturing divisions declined on a seasonally adjusted basis, with motor vehicles and other transport, electrical machinery, and glass and other non-metallic mineral products recording the sharpest drops in output.
• Over the year, sharp declines in the production of motor vehicles and other transport as well as electrical machinery offset gains in basic metals and machinery.
• Manufacturing production will increase in May because of the greatly reduced number of trading days this April. However, growth is likely to taper off in the months ahead after the strong start in the first quarter.
• The Monetary Policy Committee (MPC) is unlikely to read too much into today’s disappointing manufacturing production figures, given the significant impact of base considerations and an abnormal month which had many public holidays. However, the MPC generally views the economic recovery as hesitant and the rise in inflation as temporary, caused by earlier spikes in global food and oil prices. Consequently, the MPC will wait for more generalised inflationary pressures to emerge before tightening monetary policy. We still expect interest rates to remain on hold until early 2012.

Comment

Manufacturing production slowed by much more than the market expected. The weaker-thanexpected outcome was mainly due to the abnormally large number of public holidays in April this year compared with last year and the higher base established in March this year. Over the month, output in 8 of the 10 major manufacturing divisions declined on a seasonally adjusted basis, with motor vehicles and other transport, electrical machinery and glass and other non-metallic mineral products recording the sharpest drops in output, falling by 13,2%, 8,2% and 4,8% respectively.

Over the year, sharp declines in the production of motor vehicles and other transport as well as electrical machinery offset gains in basic metals and machinery as well as petroleum and chemicals. Output of petroleum and chemicals rose by 1,6% y-o-y in April, while production of basic metals and machinery increased by 3,4% y-o-y. …

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