Economists warn‚ however‚ that a recent strike by workers at vehicle manufacturing plants could put pressure on the August manufacturing data.
Manufacturing production increased by 5.4% year-on-year (y/y) in July from a revised 0.5% (0.4%) y/y increase in June‚ data released by Statistics SA on Wednesday (11 September) showed. Output rose 5% month-on-month in July.
A leading indicator of activity in manufacturing‚ the Kagiso purchasing managers' index (PMI)‚ has been above 50 for five consecutive months. A level of 50 or more suggests expansion in manufacturing activity.
Nedbank economists said while the PMI was encouraging‚ there were still difficulties facing manufacturers such as the current strike action.
"Labour related production disruptions are likely to have a negative impact on output growth in the short term. Therefore‚ despite the recent improvements‚ the manufacturing sector cannot be considered out of the woods yet‚" the Nedbank economists said in a research note.
While this quarter is seen as being characterised by some challenges‚ the outlook appears better.
Expected continued weakness in the rand, coupled with the economic recovery in key trading partners like Europe and the US are boosting global demand and exports.
"The improved global demand will accelerate demand for South African exports‚ in turn feeding through to higher domestic income levels and improved employment prospects by 2014‚" said Annabel Bishop, Investec's chief economist.
"The rebound in July's growth in manufacturing production reaffirms this view‚" she said.
The 5.4% y/y increase in manufacturing production in July was mainly due to higher production divisions including basic iron and steel, food and beverages, petroleum‚ chemical products‚ rubber and plastic products and motor vehicles‚ parts and accessories and other transport equipment.
Quarterly data‚ although still muted‚ was encouraging.
Stats SA reported the seasonally adjusted manufacturing production for the three months ended July increased by 2.2% compared with the previous three months. Six of the ten manufacturing divisions reported positive growth over this period.
The largest positive contributions to the increase were made by the divisions of basic iron and steel‚ non-ferrous metal products‚ metal products and machinery; food and beverages; motor vehicles‚ parts and accessories and other transport equipment.
While a manufacturing rebound would be a positive for growth‚ Standard Chartered head of Africa research Razia Khan believes other areas will weigh on gross domestic product (GDP).
"Growth rates for other components of GDP remain mired at weak levels. So as much as the actual manufacturing output data is good news‚ it will not deal decisively with broader growth vulnerabilities‚" Khan said.
Source: Business Day via I-Net Bridge
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