Macroeconomic uncertainty drags South Africa's manufacturing sector into deep decline

IOL News

3 days ago

According to Statistics South Africa (Stats SA) on Tuesday, the decline was broad based and was driven by contractions in nine out of 10 manufacturing divisions.
Image: Simphiwe Mbokazi/Independent Newspapers
Economists have warned that the ongoing macroeconomic and policy uncertainty will continue to leave operating conditions unfavourable for manufacturing production and drag the sector's contribution to South Africa's economic growth.
This comes after manufacturing output fell 6.3% year-on-year in April following a revised 1.2% contraction in March.
This was the sixth consecutive monthly contraction and the sharpest drop since March 2024.
Maarten Ackerman, chief economist at Citadel, expressed deep concern over the sector's trajectory, emphasising its vital role in job creation and economic stimulation.
Manufacturing remains one of the few sectors in the South African economy with significant potential to create jobs, stimulate broader economic growth, and provide opportunities for the unemployed.
In 2024, the manufacturing sector contributed 13% to South Africa's gross domestic product (GDP). with the sector's nominal GDP forecast to grow by an average rate of 5.7% per annum over the next decade. This sector also employs over 1.6 million people and is a significant driver of the country's export economy.
Video Player is loading.
Play Video
Play
Unmute
Current Time
0:00
/
Duration
-:-
Loaded :
0%
Stream Type LIVE
Seek to live, currently behind live
LIVE
Remaining Time
-
0:00
This is a modal window.
Beginning of dialog window. Escape will cancel and close the window.
Text Color White Black Red Green Blue Yellow Magenta Cyan
Transparency Opaque Semi-Transparent Background Color Black White Red Green Blue Yellow Magenta Cyan
Transparency Opaque Semi-Transparent Transparent Window Color Black White Red Green Blue Yellow Magenta Cyan
Transparency Transparent Semi-Transparent Opaque
Font Size 50% 75% 100% 125% 150% 175% 200% 300% 400% Text Edge Style None Raised Depressed Uniform Dropshadow Font Family Proportional Sans-Serif Monospace Sans-Serif Proportional Serif Monospace Serif Casual Script Small Caps
Reset
restore all settings to the default values Done
Close Modal Dialog
End of dialog window.
Advertisement
Next
Stay
Close ✕
Ad loading
South African industries have benefited from high carbon intensity and lower export prices, but the European Union's Carbon Border Adjustment Mechanism (CBAM) and similar policies will erode this advantage, leading to higher costs, lower demand and increased pressure from EU importers for carbon footprint and sustainability compliance.
However, Ackerman said the sector continued to grapple with deep-rooted structural challenges.
He said these included unreliable electricity and water supply, as well as ongoing issues with the country's logistical infrastructure, particularly the rail network, freight trains, and port systems.
'These constraints are effectively limiting the sector's capacity to expand. While this data reflects monthly high-frequency indicators, it aligns closely with quarterly trends showing that manufacturing is no longer a driver of economic growth, Ackerman said.
'Since the 2008 global financial crisis, the industry has largely failed to contribute positively to South Africa's GDP. In fact, manufacturing output volumes have stagnated, returning to levels last seen in early 2010. Over the past 15 years, the sector has shown no real growth.'
Ackerman said this unfortunate trend underscored a broader issue: South Africa's urgent need for fixed investment to tackle these structural barriers.
'Without meaningful and sustained investment, the country will struggle to unlock higher, more inclusive, and sustainable economic growth,' he said.
According to Statistics South Africa (Stats SA) on Tuesday, the decline was broad based and was driven by contractions in nine out of 10 manufacturing divisions.
Nicolai Klaassen, director of industry statistics at Stats SA, said the food and beverages and metals and machinery divisions were the largest negative contributors to the print.
'Together, the two divisions subtracted 3.2 percentage points from overall manufacturing growth. Four divisions contracted by more than 10%. These were electrical machinery, the automotive division, communication and professional equipment, and the miscellaneous category, furniture and manufacturing not elsewhere classified,' Klaasen said.
'Glass and non-metallic mineral products was the only division that recorded positive growth, expanding by 2.3% year-on-year.'
On a month-on-month basis, seasonally adjusted manufacturing production increased by 1.9% in April compared with March, marking a moderately better start to the second quarter of 2025.
On a quarterly basis, industrial production contracted by 1.4% in the three months to April.
The manufacturing sector's lacklustre outcome is in line with the performance of the ABSA Purchasing Managers Index (PMI).
Specifically, the PMI index moved further into contractionary territory in April, with both the business activity and new sales orders' indices declining.
Broad-based weakness in manufacturing activity has persisted through the first four months of the year, with output down by 3.4% compared to the same period last year.
FNB senior economist Thanda Sithole said the persistent annual decline underscored ongoing unfavourable operating conditions and was consistent with their assessment of downside risks to the near-term economic growth outlook.
'Operating conditions for domestic manufacturers remain unfavourable, as reflected in the continued decline in the manufacturing PMI. While the manufacturing PMI expected business conditions index improved to 62.5 points in May from 48.6 in April, indicating better near-term sentiment, conditions remain fluid amid ongoing macroeconomic and policy uncertainty,' Sithole said.
'Domestic demand, particularly private sector fixed investment, remains weak, and external economic conditions are not conducive to growth in manufacturing merchandise exports.'
BUSINESS REPORT