Meltdown — SA manufacturing output tanks 6.4% year on year in March, raising risk of Q1 GDP contraction

Manufacturing production tanked 6.4% on an annual basis in March, a shocker given that slight growth was expected.

The March manufacturing data, unveiled on Thursday by Stats SA, showed that the sector had a meltdown and may have dragged first quarter (Q1) gross domestic product (GDP) into a contraction.

The last manufacturing read before the 29 May election showed that output in the sector tanked 6.4% year on year in March, defying expectations of at least slight growth. Reuters’ consensus prediction was for a 0.4% increase.

In other words: a shocker.

sa manufacturing tanks

The fact that part of the Easter holiday fell in March this year may be a contributing factor, but that hardly explains the scale of the decline.

Weak domestic and global demand, a lack of confidence and South Africa’s persistent logistical, crime and power challenges – though the last of this trifecta showed improvement in March ahead of its sparkling April performance – probably lay at the root of the poor read.

On a monthly basis, production decreased 2.2% in March. It all adds up – on a seasonally adjusted basis – to a 1% decline in Q1 manufacturing output compared with the last three months of 2023.

“… the risk of a quarterly contraction in Q1 has risen. That said, much will depend on the outstanding economic data releases for March,” Jee-A van der Linde, senior economist at Oxford Economics Africa, said in a note on the data.

The economy narrowly dodged a recession – defined as two straight quarters of contraction – at the end of last year. So a shrinkage in Q1 would not herald a recession, but is still clearly not good and bodes ill for overall economic growth in 2024.

Still, there is potential for an April rebound.

April was notably marked by being free of rolling blackouts, and advance indicators for the month from the manufacturing sector, such as the Absa Purchasing Managers’ Index, signal this had a positive impact.

“Despite the persistent challenges, the manufacturing sector has exhibited remarkable resilience… Growth should be supported by the improvement in load shedding intensity, which has stabilised since its peak last year, as well as a gradual increase in domestic demand,” said Thanda Sithole, FNB senior economist.

Another key indicator from Q1, due for release on 14 May, will be the Quarterly Labour Force Survey, which will show the latest unemployment figure.

That will come just two weeks before the elections, and so it may also give some indication of – or even influence – the political climate. DM