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Perhaps the best reflection of a country's economic performance or climate is its maufacturing production and utilisation of available capacity. If this is low or slowing it's indicative of slowing demand in the economy. In today's blog we take a look at South Africa's manufacturing sector and the use of its available capacity.
The line graph below shows South Africa's manufacturing utilisation and under-utilisation. They are mirror images of one another, as utilisation increases, under-utilisation decreases and visa versa. An increase in utilisation signals increased demand, while an increase in under utilisation shows demand is dropping off. |
As can be seen from the graphic above South Africa experienced a severe slowdown in manufacturing utilisation in the fourth quarter of 2008 and first quarter of 2009 (utilisation of manufacturing capacity dropping from over 84% to around 77%). This industry has not recovered to pre-financial crisis levels. It's clear that utilisation has settled at a lower level since the financial crisis. Economists refers to this as a structural break. Based on the latest quarter's data (first quarter 2016), South Africa is in for a tough year if the trend experienced in the first quarter of 2016 carries on the rest of the year.
The main reasons for the under-utilisation of available manufacturing capacity (for first quarter 2016) is shown in the pie chart below.
The main reasons for the under-utilisation of available manufacturing capacity (for first quarter 2016) is shown in the pie chart below.
As the pie chart shows, 60% of the time, insufficient demand is given as the reason why there is under-utilisation of manufacturing capacity experienced by manufacturers. Though year ahead for Souht Africa's manufacturers.