Following the upward surge in the Purchasing Managers Index (PMI) over the last three months, manufacturing production in South Africa jumped by 3% month-on-month (m/m) in December 2009 from 1.1% m/m previously to show the first positive annual growth since September 2008. According to Stats SA figures, real seasonally adjusted manufacturing production grew 4.1% year-on-year (y/y) in December 2009 following a contraction of 3.8% y/y in November 2009. On a three-month annualised percentage growth basis, manufacturing production grew 14.2% following the 11.5% growth in the previous quarter. According to the report, the main contributors to growth were higher production in the motor vehicles, parts and accessories, and other transport equipment division;the basic iron and steel, non-ferrous metal product-, metal products and machinery division; the petroleum, chemical products, rubber and plastic products division; and the furniture and other manufacturing division.
Significance: Given the fact that the manufacturing sector, with its quarterly annualised growth of 7.5%, was the largest contributor to the q/q growth of 0.9% in GDP in the third quarter of 2009, it would be safe to assume that the stronger showing in the fourth quarter will bode well for a significant recovery in GDP growth in the last quarter of 2009. Manufacturing production is being boosted by inventory build-up in anticipation of stronger demand later in the year. However, IHS Global Insight maintains that the recovery in the supply side of the economy can only be sustained once the reluctant demand side shows definite signs of recovery. The latest job creation figures, which point to a halt in job losses in the coming months, will help to boost consumers' confidence and their willingness to increase spending and demand. We forecast 2% quarterly annualised growth for the fourth quarter of 2009, gathering momentum throughout 2010 to show average GDP growth of 2.5% in 2010.
