South Africa's factories went backwards again in May, with manufacturing production shrinking 4.3% compared with a year earlier — the sharpest annual contraction in just over a year. The figures, released by Statistics South Africa on Thursday, point to a sector still buckling under higher input costs, much of it traced back to the oil-price shock from the war between the United States and Iran.
-4.3%Annual drop in manufacturing output, MaySource: Stats SA+1.1%Month-on-month rise (seasonally adjusted)
A broad-based decline
Seven of the ten manufacturing divisions had a weaker month, according to Stats SA director of industry statistics Nicolai Claassen. Food and beverages did the most damage, retreating 6.4% year on year and single-handedly dragging overall output down by 1.6 percentage points. Wood, paper and printing, furniture, and glass and non-metallic mineral products also fell sharply. Only three divisions — petroleum and chemicals, textiles and clothing, and electrical machinery — managed to grow, and not by enough to turn the tide.
There was a sliver of relief in the monthly numbers: on a seasonally adjusted basis, production actually rose 1.1% between April and May. But the broader trend is weak — output over the three months to May slipped 1% — and economists warn the factory sector is shaping up to be a drag on second-quarter GDP after the economy managed just 0.5% growth in the first quarter.
"Manufacturers continue to face elevated production costs, lingering effects from the … Middle East conflict and persistent domestic infrastructure constraints," said FNB economist Thanda Sithole, who noted that business confidence in the sector remains subdued.
What it means
The timing is awkward. The Reserve Bank's Monetary Policy Committee meets on 23 July, and this data hands it a genuine dilemma. Inflation quickened to 4.5% in May and factory-gate producer prices jumped 7.8%, which argues for another hike after May's 25-basis-point increase took the repo rate to 7%. But a stalling economy argues for restraint. For households and business owners, the read is uncomfortable: borrowing costs could climb again even as growth cools — a squeeze that rarely feels fair.
