New data lift economists’ hopes
As momentum returns to the manufacturing sector, a small contraction in May is unlikely to derail GDP growth in second quarter
Despite a marginal contraction in manufacturing in May, economists are upbeat that the struggling sector will not derail overall GDP growth for 2017’s second quarter too severely.
Manufacturing production fell 0.8% in May compared with May 2016.
That occurred while seasonally adjusted manufacturing production decreased a slight 0.3% in May 2017 compared with April 2017.
BNP Paribas’s Jeff Schultz said some momentum was returning to the sector.
"Though headline manufacturing production growth remained in the doldrums in May, we are at least encouraged by the fact that momentum growth has finally climbed back into positive territory," he said.
Economic growth was expected to be positive in the second quarter of 2017 despite the "slight slump" in manufacturing, Schultz said.
"Though off a low base, this spells relatively good news for the second-quarter production-side GDP following the dismal performance in the first quarter where the sector was one of the largest factors behind SA slipping into a technical recession," Schultz said.
John Ashbourne, a Capital Economics economist, said that the easing in the manufacturing sector’s contraction, which was combined with an increase in consumer spending, was supportive of the view that "GDP growth returned to positive territory after contracting in the first quarter".
In terms of the quarter-on-quarter performance, manufacturing output rose 0.4% in the three months to the end of May 2017 compared with a contraction of 0.3% in the three months to the end of April 2017.
"Things probably improved [in the second quarter]," Ashbourne said.
Manufacturing Circle executive director Philippa Rodseth added: "In spite of the general volatility seen in the manufacturing production and sales [indices] and the [purchasing managers’ index] figures, we are perceiving a general downward trend for the second quarter."
The production numbers and the purchasing managers’ index indicated the sector was contracting, Rodseth said.
However, she remained upbeat that the manufacturing sector was the key to turning the economy around.
Busisiwe Radebe, a Nedbank economist, said second-quarter data "so far suggested" that economic activity had remained weak but that manufacturing production was expected to improve modestly in the second half of the year due to stronger global growth and firmer international commodity prices.
But Radebe warned that import-competing industries were likely to face another tough year as confidence among both businesses and households remained depressed, "undermined by an uncertain political landscape and challenging financial conditions".