File photo: REUTERS
File photo: REUTERS

With the improvement in the economy gaining momentum, the manufacturing industry says it is optimistic it will see a strong first quarter in 2018.

Manufacturing production increased by 2.5% year on year in January 2018 compared with a year ago, after a 1.8% year-on-year increase in December 2017. Seasonally adjusted manufacturing production decreased by 1.6% in January compared with December 2017.

"Sentiment is changing and there is growing optimism about the prospects of the economy. Management teams are more positive about the future," said André de Ruyter, chairman of the Manufacturing Circle.

However, De Ruyter stressed that the manufacturing sector was not out of the woods yet, as SA’s unemployment levels remained staggeringly high at 27.7% and business confidence was only starting to pick up.

Companies surveyed by the Manufacturing Circle expected a further increase in the first quarter of 2018, attributing this to the general sentiment that the local economy was improving.

Stanlib chief economist Kevin Lings expected the recent improvement in manufacturing to continue at a modest pace in 2018, helped by relatively strong global growth and the steady uplift in business confidence due to a more stable political environment. This would be bolstered by stronger global demand, firmer international commodity prices and some improvement in domestic demand, said Nedbank senior economist Nicky Weimer.

Capital Economics economist John Ashbourne said that the economy retained momentum at the beginning of 2018 and the increased optimism reflects the election of President Cyril Ramaphosa.

The manufacturing industry was mentioned in Ramaphosa’s state of the nation address as one of the government’s top priorities to foster overall growth.

"If we succeed in catalysing a debate on how to grow the economy and put more people to work, we will have achieved the first step on the road towards creating a million new jobs," said De Ruyter, adding that this required political will.

The manufacturing purchasing managers’ index (PMI), which gauges manufacturing activity, rose sharply in January to 49.9. In February the index moved above the 50 mark — which divides expansion from contraction — for the first time since May 2017.

"With all the major indices of the PMI showing consecutive increases, it is clear that the tide has turned for the better for the manufacturing industry," said NKC economist Elize Kruger.