Manufacturing In Contraction As Demand Remains Depressed Due To Covid-19 Restrictions

13 January 2021 – Manufacturing production in South Africa is expected to stay in contractionary territory in the short to medium term as demand remains depressed due to the extension of Covid-19 lockdown restrictions.

Data from Statistics South Africa (StatsSA) yesterday showed that manufacturing output continued its downward spiral in November, falling 3.5 percent compared with the same month a year before.

This was the 18th straight month of declines in factory activity and at the quickest pace since August as the impact of the Covid-19 pandemic continued to affect demand.

StatsSA said that production shrank primarily for petroleum, chemical products, and rubber and plastic products, which fell by 9.6 percent.

Food and beverages production declined 2.9 percent, while basic iron and steel, non-ferrous metal products, metal products and machinery was 3.9 percent down.

FNB economist Geoff Nölting said the manufacturing sector was facing headwinds on value chain disruptions due to domestic and international lockdowns imposed to contain the spread of Covid-19.

“However, there are a number of structural impediments that need to be addressed in order for the sector to thrive in the longer term,” Nölting said. “These are mainly electricity supply and cost constraints, low domestic demand and declining global competitiveness.”

StatsSA said seasonally adjusted manufacturing production declined 1.3 percent in November, following an upwardly revised 3.2 percent increase in October and 2.8 percent in September. The output, however, increased by 8.9 percent in the three months ended November, as all 10 manufacturing divisions reported positive growth rates over this period, likely supported by the lifting of restrictions on alcohol sales.

The Steel and Engineering Industries Federation of SA (Seifsa) said that the decline in the overall manufacturing production growth rate showed that the economy was in for a tough ride to recovery.

Seifsa chief economist Chifipa Mhango said it was concerning to note that one of the key contributors to the decline was basic iron and steel, non-ferrous metal products, metal products and machinery.

“With continued lockdown restrictions and reduced industrial demand activities from the domestic and international economy, and as Europe moves into stricter lockdown. Source (Business Report)