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Production side of economy improves in May

16 Jul 2012

Manufacturing and mining production beat expectations and came in higher than forecast in May‚ with analysts warning however‚ that the improvement could be temporary.

Leading indicators of activity in the sectors‚ the Purchasing Managers Index (PMI)‚ and falling demand in SA's major trading partners suggest that the sectors will continue to be under pressure in 2012‚ analysts warn.

Output from the two sectors contributes significantly to overall domestic growth‚ and they both account for a large portion of formal employment. Their performance is one of the factors used to gauge economic growth.

Official figures from Statistics SA showed that manufacturing production increased 4.2% year on year in May‚ while mining production left behind a ten month decline to grow 0.8% year on year.

The increase in manufacturing production was mainly supported by higher production in the food and beverages; petroleum and chemical products; and motor vehicles‚ parts and accessories and other transport equipment divisions.

Ilke van Zyl‚ economist at Absa Capital‚ attributed the 2.1 percentage point contribution by the food and beverages division to lower food inflation in the past few months‚ which she added had helped consumers buy more and consequently encourage higher production.

"Also‚ export of goods jumped significantly in May‚" she said.

Kevin Lings‚ economist at Stanlib‚ said that in the past three months‚ manufacturing production had declined by 0.9% quarter on quarter‚ and seasonally adjusted.

"This could restrict SA's Q2 2012 GDP growth estimate‚ but most of the weakness over the past three months occurred in March 2012‚" Lings said.

He noted that the June manufacturing reading would be critical to the overall outcome for second quarter growth.

Mining production figures reflected the current constraints in the sector including waning global demand and slightly weaker commodity prices.

Data showed that non-gold production rose 1.3% year on year on the back of higher coal and iron ore output‚ while platinum group metals production fell by 6.0%. The worst affected‚ according to the data‚ was gold whose production fell for the 13th consecutive month on a year-on-year basis.

The mining sector is expected to remain under pressure for most of 2012‚ with the outlook being gloomiest for the platinum sector.

Source: I-Net Bridge

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