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South Africa’s manufacturing sector faces post-COVID headwinds
Confidence in South Africa’s manufacturing sector slumped 14 points in the second quarter, hurt by April’s devastating floods and load shedding. At 29 points, the sector is significantly below the neutral mark of 50, which signals expansion. For more on the state of manufacturing, CNBC Africa is joined by Thanda Sithole, Senior Economist at FNB.
Thu, 23 Jun 2022 10:51:18 GMT
Disclaimer: The following content is generated automatically by a GPT AI and may not be accurate. To verify the details, please watch the video
AI Generated Summary
- Confidence in the manufacturing sector dropped by 14 points in the second quarter, largely due to April's floods and ongoing load shedding.
- Short-term outlook for manufacturing is bleak, with weak growth expected in the second quarter, but there are signs of a rebound in the third quarter.
- Long-term headwinds such as global economic slowdown and inflation could impact manufacturing demand, despite government initiatives for economic recovery.
South Africa's manufacturing sector is grappling with a multitude of challenges as it navigates the aftermath of the COVID-19 pandemic. Confidence in the sector has plummeted by 14 points in the second quarter, largely due to the impact of April's devastating floods and persistent issues with load shedding. Thanda Sithole, Senior Economist at FNB, highlighted that production contracted by nearly 8% in April, with seven out of 10 sectors experiencing negative growth at the start of the quarter. The combination of load shedding and floods has significantly hampered manufacturing activity, leading to a sharp decline in confidence levels. Sithole acknowledged that the road ahead appears bleak in the near term, with the second quarter expected to show weak growth. However, there is hope for a rebound in the third quarter, supported by some positive signs in May. Despite short-term challenges, Sithole emphasized that there are several long-term headwinds that could impact both domestic and external demand. Sithole pointed out that global growth forecasts are moderating, and there are concerns about inflation, which could further dampen demand for manufactured goods. The government's ambitious plans to revive the economy through infrastructure projects like Operation Vulindlela are viewed positively in the medium to long term. However, Sithole cautioned that these initiatives may not yield immediate benefits for the manufacturing sector. He stressed that the sector's performance will depend on a combination of domestic and global demand dynamics. In the event of a global recession, Sithole warned that the outlook for manufacturing would worsen significantly. While he currently does not foresee a recession, he acknowledged that the probability has increased in recent months. Sithole highlighted the risk of a domestic recession, particularly in light of the challenges faced in the second quarter. Despite the sector's ongoing constraints, Sithole expressed optimism about the government's efforts to address key issues that have impeded manufacturing growth for years. He noted that while confidence levels remain subdued, there is potential for improvement if structural reforms are effectively implemented.
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