Most eyes will be on Thursday’s release of August manufacturing production data, the headline release in what is otherwise a quiet week on the local economic calendar.
Manufacturing contributes about 13% to GDP, and its performance is a bellwether for broader economic momentum.
Production contracted by 0.7% year on year in July, reversing a 1.9% increase in June. More recent data offers little comfort. The Absa purchasing managers’ index (PMI) slipped back into contraction in August, falling to 49.5, “which could foreshadow another weak month”, Lisette IJssel de Schepper of the Bureau for Economic Research (BER) said.
August’s PMI reversed July’s marginal move into expansionary territory and signalled renewed headwinds for the sector. But IJssel de Schepper noted the Absa PMI for the full third quarter was better than the second quarter.
Investec economist Lara Hodes expects August’s factory production to have decreased by a further 0.5% year on year following July’s slide.
“According to the results of the latest Absa manufacturing survey, confidence among respondents dipped in the third quarter. This is reflective of the underlying weaknesses in the sector as manufacturers continue to face constrained demand, with activity also constrained by logistical problems and burdensome government regulations that are tough to meet, according to the BER,” she said.
She added that political uncertainty, “domestically but increasingly globally, continues to weigh on manufacturing business confidence”, while “the US tariffs have increased the uncertainty and volatility of trade”.
On August 7, the US reimposed tariffs of 30% on all SA exports. The blanket tariffs mark a significant escalation in trade tensions and are expected to weigh on local manufacturers, particularly those reliant on US markets. The increased cost burden could dampen export competitiveness and add to the uncertainty already facing the sector.
Yet not all analysts share Hodes’ bearish view. Nedbank’s economists forecast a more positive outcome, expecting manufacturing production to have increased by a modest 0.3% year on year in August.
“While the sector continues to struggle, some support will come from consumer-orientated manufacturing sectors, which will benefit from the upturn in demand, improvements in electricity generation, and logistics,” they said.
This divergence in outlook reflects the sector’s uncertain footing.
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