Nedbank: Manufacturing production

13 Oct.

Nedbank Economic Commentary: Manufacturing production.

Manufacturing production surprised on the upside in August.

• Total production rose by 5,6% y-o-y following a 6,2% drop in July, mainly due to increased production of ‘motor vehicles, parts, accessories and other transport equipment’ as well as ‘food and beverages’, which rose by 40,9% y-o-y and 8,7 % y-oy respectively following drops of 5,4% and 2,7% in July.
• The consensus forecast was for total production to decline by 0,9% y-o-y.
• Over the month, production increased by 7,6% on a seasonally adjusted basis, with ‘motor vehicles, parts, accessories and other transport equipment’, ‘basic iron and steel, non-ferrous metal products, metal products, machinery’ and ‘food and beverages’ up by 16,6%, 12,1% and 10,9% respectively.
• Manufacturing production is likely to improve at a slower rate during the remainder of the year, reflecting both the base effect and weaker global demand.
• Stronger than expected output numbers for August are encouraging and bode well for third quarter gdp growth. Despite the deteriorating inflation outlook, we expect the Reserve Bank to continue with its wait-and-see approach, until there is convincing evidence of a sustainable recovery in economic activity both locally and globally. Therefore the MPC is likely to leave interest rates flat well into 2012. However, if local and global economic conditions were to weaken further, an interest rate cut may be on the cards before the end of the year.

Comment

The stronger-than-expected annual growth figure was mainly pushed up by a strong rebound in production of ‘motor vehicles, parts, accessories and other transport equipment’, which rose by 40,9% y-o-y following a 5,4% drop in July – reflecting the continued recovery from Japan-related disruptions – as well as production of ‘food and beverages’, which increased by 8,7% y-o-y following a 2,7% drop. Output of ‘basic iron and steel, non-ferrous metal products, metal products, machinery’ also bounced back in August, rising by 2% following production disruption at key iron and steel plants in July, which resulted in 12,3% drop in production. Output in other sectors also improved in August, with production either rising or declining at a slower rate. …

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