Manufacturing production rose 6,2% year on year in January, buoyed by a softer rand and strong local and global demand.

The sector’s fortunes have improved considerably in recent months as the rand weakened and spending by government and the private sector increased.

According to data released yesterday by Statistics SA, production fell 0,5% in the month.

“We remain optimistic about the manufacturing sector, based on our expectation of some further weakening in the currency, indications of a pick-up in business expenditure, and infrastructural work spearheaded by the government,” said Absa Capital economist Monale Ratsoma. He also said quotas for Chinese imports in clothing and textiles had the potential to boost domestic production.

January’s year-on-year growth of 6,2% was up from December’s 5%. In last year’s fourth quarter, the sector grew a seasonally adjusted 8,3%, contributing 1,4 percentage points to overall gross domestic product (GDP) growth.

Fourth-quarter growth was up from the third quarter’s 4,7%. The sector accounts for just more than 16% of GDP.

The revival in the supply side of the economy bodes well for economic growth. The economy grew at a seasonally adjusted 5,6% in the fourth quarter of last year as better performance in sectors such as manufacturing mitigated the negative effect of higher interest rates on consumer demand.

“Continued growth in the manufacturing sector, combined with strong fourth-quarter GDP growth, may provide some comfort for the Reserve Bank that interest rate hikes are not unduly affecting the production side of the economy,” said Nedbank economist Carmen Altenkirch.

The Bank hiked interest rates by a cumulative 200 basis points last year in an effort to slow rampant consumer spending and ease the pressure placed on the current account by the increase in imports.

The deficit on the current account ballooned to more than 6% of GDP, before moderating to 5,2% in the third quarter of last year. Analysts are of the view that the deficit will remain large, however, as infrastructure spending by both government and the private sector is likely to be import intensive.

The local unit was quoted at R7,40 to the dollar yesterday, down 1,1% on the day.

The outlook for the sector, as indicated in the Investec purchasing managers index (PMI), a leading indicator of activity in the manufacturing sector, remains positive.

The PMI rose to 60,3 last month, up from 57,2 in January.

The manufacturing sector has also managed to create more jobs in the past few months, reversing a trend during which employers had to retrench workers in an effort to remain competitive.