SA manufacturing sector one of the worst hit across EMs - Capital Economics
Africa Economics

SA manufacturing sector one of the worst hit across EMs

Africa Economics Update
Written by Virag Forizs

Hard activity data from South Africa confirm that the economy has been among the hardest hit across major EMs by the coronavirus crisis and, while the lockdown has been eased in recent months, we think that the recovery will be a lot weaker than most currently expect.

  • Hard activity data from South Africa confirm that the economy has been among the hardest hit across major EMs by the coronavirus crisis and, while the lockdown has been eased in recent months, we think that the recovery will be a lot weaker than most currently expect.
  • Belated activity data published by Stats SA today showed that manufacturing production plummeted by 44.3% m/m in April, the height of the country’s restrictive lockdown. (See Chart 1.) The outturn was worse than the Bloomberg consensus for a 30.9% m/m decline in output.
  • South Africa’s manufacturing sector appears to have been among the hardest hit among major EMs. In April, overall industrial production declined at a sharper pace in year-on-year terms only in India (-55.5%) and Peru (-54.9%) compared to South Africa’s 49.4% tumble. (See Chart 2.)
  • The breakdown of the data showed that auto manufacturing essentially came to a standstill in April. Output also dropped sharply in other categories including consumer products as well as metals and machinery. Food production was the least affected by the lockdown, dropping by “only” 19.4% y/y in April.
  • Of course, these figures are largely old news. South Africa’s coronavirus restrictions were eased a touch in May, which has supported a modest recovery in activity. The manufacturing PMI has rebounded over the past couple of months. While the headline figure might give mixed messages, the business activity component is consistent with manufacturing production returning to growth in June. (See Chart 3.)
  • Even under the current lockdown level three (in place since the start of June), some manufacturing businesses are not yet permitted to operate at full capacity. The remaining businesses can return to 100% of employment only under lockdown level two, for which a timeline has not been provided by officials. And further easing of restrictions may be delayed as new coronavirus cases do not seem to have levelled off in South Africa, let alone decreased.
  • The upshot is that the economic recovery in South Africa is likely to be very weak. Surveys point to large losses in employment and incomes that will weigh on domestic demand. Car sales were down by 65.5% y/y in May. (See Chart 4.) And consumer confidence for Q2 tumbled to the lowest level since 1985. We are comfortable in our below-consensus view that GDP will fall by 11% this year. (See here.)

Chart 1: Manufacturing Output (% m/m)

Chart 2: Manufacturing Production (% y/y, April)

Chart 3: Manufacturing PMI & Production

Chart 4: Car Sales (% y/y)

 

Sources: Stats SA, SARB, Refinitiv, Capital Economics


Virág Fórizs, Africa Economist, virag.forizs@capitaleconomics.com