Nedbank: Manufacturing production

13 Jan.

Nedbank Economic Commentary: Manufacturing production.

Manufacturing output improved slightly in November.

• Manufacturing production improved slightly in November, but underlying conditions remained weak. Output rose by a seasonally adjusted 2,9% m-o-m and by 2,6% y-o-y, up from 1,2% y-o-y in October and slightly above market expectations of 2,3% annual growth.
• The improvement was mainly due to higher production of food and beverage products, wood processing, various metal products and electrical machinery. In contrast, production of motor vehicles, parts and accessories and other transport equipment was 12,6% below levels recorded in the same month the year before.
• The outlook for manufacturing activity remains weak. Signs of recession in the Eurozone and weak conditions in other major countries will undermine exports. Added to this, the uncertain global environment will probably put some strain on local company earnings and job security, undermining consumer confidence. Consequently, the pace of domestic spending and capital expenditure is likely to slow, hurting those industries supplying the consumer market and providing inputs into expansionary projects.
• Today’s manufacturing production figures confirm that the production side of the economy remains subdued. Conditions will probably deteriorate in early 2012 as weak demand conditions in the Eurozone undermine local exports and production, with negative implications for capital expenditure and job security. Consequently, the downside risks to economic growth are expected to dominate monetary policy decisions for much of 2012. The Reserve Bank’s Monetary Policy Committee (MPC) is likely to keep interest rates at current low levels until around November this year, before adopting a more hawkish stance as inflation remains stubbornly high and the global economy slowly moves onto firmer ground.

Comment

Manufacturing production improved in November, rising by a seasonally adjusted 2,9% over the month and 2,6% over the year. Despite the improvement, most industries lack underlying momentum, with output mainly returning to more normal levels off last month’s low base. Over the month, most industries reported higher production following sharp contractions in October. The only exception was the broader ‘radio, television and professional equipment’ industries, where output fell by 2,8% m-o-m, after dropping by a massive 10% in October. …

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