Nedbank: Manufacturing production

10 Feb.

Nedbank Economic Commentary: Manufacturing production.

Manufacturing activity remained subdued in December.

• Manufacturing production fell by a seasonally adjusted 1,3% m-o-m in December, containing the annual increase to 2,4% from an upwardly revised 2,8% in November. The market expected production to increase by 2,6% y-o-y.
• The subdued annual increase was mainly due to higher production in the following broad industries: ‘basic iron and steel, non-ferrous metals, metal products and machinery’, ‘petroleum, chemicals, rubber and plastics’ as well as ‘wood, paper, printing and publishing’.
• In the fourth quarter, manufacturing production rose by a seasonally adjusted 1% q-oq and by 2,1% y-o-y. The stronger manufacturing and mining production figures are likely to translate into seasonally adjusted annualised gdp growth of around 4% q-o-q in the fourth quarter, taking gdp growth for 2011 to 3,2%.
• In 2011 as a whole, manufacturing output grew by 2,5%, after rising by 5% in 2010.
• The trading environment is likely to remain difficult in 2012. Weak demand conditions in the Eurozone will hurt exports, placing strain on local company earnings. In response, the affected industries will probably become more conservative and cost conscious, containing capital expenditure while limiting growth in wages and employment. This will weigh on household confidence too, making consumers more hesitant to part with their cash. Slower growth in consumer spending and capital expenditure will, in turn, hurt those manufacturing industries supplying the consumer market and providing inputs into expansionary projects.
• Today’s softer-than-expected output figures confirm that the production side of the economy remains under pressure. The monetary authorities will also be concerned about what lies ahead for producers. A prolonged and severe recession in Europe will not only hit local exports but also capital expenditure, job security and consumer spending. These uncertainties will probably convince the Reserve Bank’s Monetary Policy Committee (MPC) to leave interest rates unchanged until around November, before adopting a more hawkish stance as inflation remains stubbornly high and the global economy slowly moves onto firmer ground.

Comment

Manufacturing activity remained subdued in December, with production growing by less than expectations of an annual increase of 2,6%.

Output fell by a seasonally adjusted 1,3% over the month. Only four major industries managed to increase production in December, including ‘basic iron and steel, non-ferrous metals, metal products and machinery’, ‘petroleum, chemicals, plastics and rubber’ as well as ‘wood, paper, printing and publishing’.

Over the year, the largest increases in production were recorded in the following industries: basic iron and steel, non-ferrous metals, metal products and machinery (up 7,9%); petroleum, chemicals, plastics and rubber (up 5,3%); wood and wood products, paper, publishing and printing (up 10%) as well as radio, televisions and professional equipment (up 10%). In contrast, production of motor vehicles and other transport equipment was still 6,2% below levels recorded in the same month the year before.

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