Depressed manufacturing data signals tough task for Cyril Ramaphosa

As President Cyril Ramaphosa drummed up promises of further investment in SA, data released on Thursday underscored the difficulties he faces in reviving an economy that has not grown more than 2% in the past five years.

Factory output fell for the fourth month running in September, with nine out of 10 manufacturing sectors shrinking on an annualised basis, according to Stats SA figures.

The outcome suggests that the manufacturing sector will weigh on economic growth figures for the third quarter of 2019, said analysts. The economy grew 3.1 % in the second quarter, but third-quarter figures are not expected to be as buoyant.

Manufacturing production fell 2.4% year on year in September, with only the food and beverages sector recording growth. The reading came in below expectations for a less severe 0.9% decline.

On a seasonally adjusted basis, production over the past three months shrank 0.9% compared with the second quarter of the year, making it the third  quarterly contraction running.

“The manufacturing sector remains deeply strained and September’s release confirms that the sector will be a negative contributor to Q3 economic growth,” said Elize Kruger, analyst at NKC African Economics.  

The outlook is also unlikely to improve in the near term, according to Nedbank economists Candice Reddy and Dennis Dykes, judging by results of the latest gauge of sentiment in the sector. The most recent Absa-BER Purchasing Managers Index released in the past week remained in contraction territory, and has done so for most of the year.

On Thursday, business confidence, measured by the SA Chamber of Commerce and Industry (Sacci) registered a month-on-month decline in October, driven by lower imports and exports, rand depreciation and load-shedding.  

The Sacci business confidence index (BCI) measured 91.7 in October, down 0.7 points from September’s reading. The index was down 4.1 points on last year’s October reading of 95.8

Confidence levels appear to have hit a plateau, the chamber said in a statement on Thursday, at a time when policymakers have “little manoeuvring space” to set the economy on course.

Last month’s medium-term budget policy statement — which showed that economic growth is only expected to reach 0.5% in 2019, along with a sharp deterioration in government finances — saw ratings agency Moody’s Investors Service drop its outlook on SA government debt to negative.

“It is doubtful whether the current fiscal situation could be contained and reversed to inspire growth and employment,” Sacci said.

“Credit ratings agencies, lenders and investors are reluctant to make decisions in an uncertain environment. The need for economic growth and reducing unemployment must take centre stage,” it said.

donnellyl@businesslive.co.za