Manufacturing contracts for third month in August

South African factory output shrank for a third straight month in August.

Manufacturing production declined 1.8% from a year earlier, compared with a revised 0.7% drop in July, Pretoria-based Statistics South Africa said Thursday in a report on its website. The median estimate of 11 economists in a Bloomberg survey was for a 2.5% contraction. Output increased 1.3% in the month.

Key insights

• The drop in output exacerbates a poor start to the third quarter for an economy that managed to dodge a second recession in consecutive years after it expanded an annualised 3.1% in the three months through June.
• A gauge measuring sentiment in South Africa’s manufacturing industry fell to the lowest level in more than a decade in September. It will probably get worse after the measure tracking expected business conditions in six months’ time declined for a fourth month, according to Absa’s Purchasing Managers’ Index.
• Manufacturing accounts for about 14% of gross domestic product and output is very sensitive to power-supply constraints. While Eskom hasn’t implemented large-scale blackouts since the first quarter, a member of the utility’s board, Nelisiwe Magubane, has warned that an uptick in economic growth could lead to a new round of power cuts as Eskom won’t be able to respond to an increase in demand for electricity.
• The largest declines were in the iron and steel, non-ferrous metal products and machinery sectors.
• South Africa’s economy is stuck in its longest downward cycle since 1945, with business confidence at the lowest level in more than three decades.