Positive trend in world trade lifts factories
The strengthening global economy and sustained positive momentum in global trade has helped to boost the country’s manufacturing sector, figures released by Statistics SA on Thursday showed.
Manufacturing production rose for the second consecutive month by 1.7% year on year in November 2017. The sector experienced an even healthier 2.3% rebound in October after a disappointing performance in September.
While domestic demand remained weak due to low business confidence and policy uncertainty, increased new manufacturing and export orders pointed to a continued expansion in global activity. They also pointed to sustained positive momentum in global trade, said Investec economist Kamilla Kaplan.
On Wednesday, the World Bank forecast a global average of 3.1% growth in 2018, which would place economic growth at its full potential for the first time since the 2008-09 financial crisis.
After a weak performance during most of 2017, manufacturing production is expected to improve further off a low base in the final quarter of this year and into 2018, said Nedbank economist Nicky Weimer.
“Better performances are expected in most export-orientated industries, supported by stronger global growth and slightly firmer international commodity prices,” she said.
While a synchronised global recovery should remain supportive of the sector into 2018, the significant appreciation of the rand following the election of market favourite Cyril Ramaphosa as president of the ANC in December could constrain the sector’s export earnings, said NKC economist Elize Kruger.
She said that local demand was also expected to recover moderately in 2018 on lower inflation, lower interest rates and a mild recovery in confidence levels, all of which will create higher demand for manufactured products.
In December, the Absa purchasing managers index (PMI), which measures sentiment in the manufacturing industry, suggested a slight improvement in the sector in November. The PMI rose to its best level in six months to 48.6 index points in November 2017 from 47.8 index points in October.
While the global environment remains supportive, Absa economist Miyelani Maluleke said business confidence remained low in the sector.