The data released by Statistics South Africa on Monday – while not a train smash – were clearly a disappointment and fell below market expectations.
On a year-on-year basis, production barely grew, rising just 0.2% compared with a downwardly revised 2.0% in January. And compared with the previous month, seasonally adjusted manufacturing output declined 1.1%.
“We suspect that February’s electricity load shedding (including Stage 4) might have impacted manufacturing activity. At this stage, this data (though incomplete) corroborates our view that economic growth was sustained in 1Q22, albeit at a slower pace relative to 4Q21,” said FNB economist Thandi Sithole.
Overall, economic growth is slowing sharply this year after expanding 4.9% in 2021 as base effects from that bounce fade. Still, there were hopeful signs that manufacturing was getting off to a relatively perky start to the year.
The Absa Purchasing Managers’ Index notched its third consecutive month of gains in March, suggesting a tentative return of confidence to the sector. And new vehicle sales hit their highest level since before the pandemic. This data read tells a more sluggish story.
Retail trade and mining production data for February will be unveiled later this week and will provide a wider view of the economy’s performance in the first part of the year.
Of course, there are plenty of headwinds as South Africa descends into winter. Load shedding will almost certainly pick up again – Eskom late Monday warned that the system was “severely constrained”, a warning that is often followed by rolling power cuts.
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Meanwhile, Russia’s unnecessary war in Ukraine is exacerbating food and fuel inflation, and is seen as curbing global growth and, by extension, South Africa’s economic performance.
High commodity prices are the one silver lining for South Africa, but they are adding significant cost pressures to manufacturing and other sectors.
With an unemployment rate of over 35%, South Africa’s economic recovery from the 2020 collapse has been so far largely jobless. For business to start hiring and creating jobs, a far more conductive environment is required. DM/BM