Total manufacturing output (not seasonally adjusted) expanded by 1.6% y/y in August, reflecting a moderation from 2.2% y/y (previously 2.3% y/y) growth in July. The outturn was below the consensus prediction of a 2.3% y/y expansion. Seasonally adjusted output expanded by 0.5% m/m, not enough to reverse the 1.7% monthly decline in July. The monthly rebound, though partial, is consistent with the PMI business activity, which recovered to 50 index points during the reference month from 38.1 in July. Nevertheless, the business activity relapsed in September to 41.9, signalling a possible monthly decline in manufacturing output. In the three months to August, output shrank by 0.4%, consistent with our view of a quarterly GDP growth moderation in the third quarter.
Outlook
Manufacturing output is still on track to show slight growth in 2023, having expanded by 0.5% YTD (January-August) after declining by 0.3% in 2022. This is despite the challenges of load-shedding costs, weaker demand, and global trade. The automotive sector (up 5.7% YTD) has contributed the most to the growth performance in total manufacturing output, followed by the basic iron and steel division (up 1.7% YTD), wood and wood products division (up 0.7% YTD), and food and beverages division, which is also up 0.7% YTD. Although the latest PMI reading points to weaker activity at the end of the third quarter, manufacturers were optimistic about near-term operating business conditions. Beyond this year, lower levels of load-shedding and a modest recovery in demand should underpin growth in the sector. We are, however, still concerned about the logistics challenges, which, combined with load-shedding, have been a binding constraint on economic activity.
Selected sector analysis
Growth in manufacturing output in August reflected an increase in four out of ten manufacturing divisions. Amongst the major divisions, the petroleum, chemical products, rubber and plastic products division expanded by 7.2% y/y, reflecting steady growth from 7.2% y/y expansion in July. Growth was robust in the petroleum-related output divisions as well as rubber products. Output in the basic iron and steel, non-ferrous metal products, metal products and machinery division expanded by 4.0% y/y after declining by 1.5% y/y in July, underscoring robust growth in structured metal products and special purpose machinery. The wood and wood products, paper, publishing and printing division also expanded by 3.4% y/y, a moderation from 7.0% y/y growth in the previous month.
The food and beverages division declined by 3.0% y/y after declining by 4.0% y/y in July, dragging total manufacturing growth. Within this division, activity decreased in grain mill products, other food products and beverages. Meanwhile, meat, fish, fruits, etc. and dairy production expanded by 4.1% y/y and 2.9% y/y, respectively.
Activity in the motor vehicles, parts and accessories and other transport equipment division shrank by 0.8% y/y from 9.5% y/y expansion in July. This underscored a 0.6% y/y decline in motor vehicle production from robust growth over the past four months. Activity also declined in the parts and accessories and other transport equipment divisions.
