Lockdown still squeezing manufacturing output
12 August 2020 | Web Article Number: ME202020064
THE lockdown regulations implemented to curb the spread of COVID-19 have continued to impede manufacturing production output, although at a somewhat decelerated pace.
That’s according to FNB Economist, Geoff Nölting, who said this had resulted in manufacturing production for the months of June and May decreasing by 16.3% year-on-year (y/y) and 32.4% respectively.
“The June print is the 13th consecutive annual decline in manufacturing production but it outperformed the Bloomberg consensus expectation of a 25.8% y/y decrease. The June and May prints follow upwardly revised contractions of 49.3% y/y (previously -49.4%) in April and 5.2% (-5.5%) in March.”
Nölting said that excluding the lockdown period (i.e. since March), in level and non-seasonally adjusted terms, the last time manufacturing output was lower than in June 2020 was January 2011. On a seasonally adjusted basis, the downturn is even more pronounced as output in level terms has plunged to a level last seen in June 1999.
The largest detractor from the June headline number was due to iron, steel and metal products which declined by 19.6% y/y and shaved off 3.7 percentage points (ppt). This was followed by food and beverages (-11.4% y/y and -3.4ppt); vehicles and transport equipment (-38.8% and -3.2ppt); wood, paper, publishing and printing products (-24.5% y/y and -2.7ppt); and furniture and “other” manufacturing (-46% y/y and -1.3).
“Unsurprisingly, manufacturing output increased on a month-on-month seasonally adjusted basis by 16.8% in June and 30.4% in May, primarily due to an artificially depressed base in April (-44.4%) amid the implementation of level 5 lockdown measures.”
On a quarter-on-quarter seasonally adjusted basis, manufacturing production declined by 30.2% in 2Q20 after falling by 2.1% in 1Q20. “The largest detractor in the quarter can be attributed to iron, steel and metal products (-36.6% q/q and -6.8ppt) and confirms our view of an unprecedented decline in the manufacturing sector’s gross value added for the second quarter.”
While the overall downturn in production was less pronounced in the June print, Nölting predicted severe capacity destruction amid stringent lockdown measures would likely prevent the manufacturing sector from fully recovering to pre-COVID levels in the near term.
“In addition, the sector will likely continue to face material headwinds in the form of electricity supply constraints and costs, subdued domestic demand and low global competitiveness.”