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SA manufacturing decline slows

Largest positive contribution came from food and beverages.
Coca Cola bottling plant. Image: Henner Frankenfeld, Bloomberg News
South African factory output contracted less than forecast and at the slowest pace in seven months in September on increased production of food and beverages.Output fell 2.6%, compared with a revised 11.1% decline in August, Statistics South Africa said Tuesday in a report published on its website. The median estimate of nine economists in a Bloomberg survey was for a 7.7% drop. Production rose 3.2% in the month.

Key insights

  • The largest positive contribution came from food and beverages in September, the first full month that alcohol was allowed to be sold again following the end of a second curb on liquor trade.
  • Production rose by 32.9% in the three months through September, which means the manufacturing sector, which accounts for about 11% of gross domestic product, may have made a positive contribution to overall output in the third quarter. The statistics office will publish GDP data for the period on Dec. 8 after reporting an annualized 51% contraction for the previous three months.
  • Demand for manufactured products continued to recover with the gradual easing of the lockdown, according to Absa Group Ltd.’s Purchasing Managers’ Index. The gauge jumped to a record in October. While this signals a strong start to the fourth quarter, some businesses reported demand and capacity nearing normal, pre-Covid-19 levels, which means the rebound in output could start to flatten.
  • Manufacturing could also face headwinds from renewed restrictions in Europe that sparked fears demand for South African exports will decline.

Nedbank’s Group Economic Unit said the recovery seen thus far from April’s trough is expected to continue for the remainder of the year. “Over the year to date, manufacturing production is still down by 14.4%. The latest global and domestic PMI’s provide a glimmer of hope, although the second wave of coronavirus infections in advanced economies and the threat of a resurgence of cases domestically pose significant downside risks to the rebound.”

© 2020 Bloomberg L.P.

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