This is the view of economists and industry body the Manufacturing Circle after the release of manufacturing production figures for February by Statistics SA on Tuesday.
February's decline in manufacturing activity is despite a rosier outlook in the manufacturing purchasing managers index (PMI) released last week.
According to StatsSA, manufacturing production fell by a worse-than-expected 3.6% in February compared with February 2016 while seasonally adjusted manufacturing production was down 0.4% in February 2017 compared with the year before.
Manufacturing Circle executive director Philippa Rodseth said the fall in production in the year to February was alarming as manufacturing "is the engine of the South African economy".
The manufacturing sector makes up 13% of SA's GDP.
"Looking at these latest statistics, we are now even more concerned about the state of manufacturing in SA and especially jobs in the sector," said Rodseth. The figures did not reflect the recent economic and political developments that the PMI flagged as a possible concern for the sector.
BNP Paribas economist Jeffrey Schultz said, "The poor performance of manufacturing activity in the first two months of the year is disappointing and does not tally with the improvement observed in key manufacturing PMIs in recent months."
On a seasonally adjusted month-on-month basis, production growth fell 0.4% in the month despite the manufacturing PMI climbing to its highest level since June 2016. The PMI was 52.5 in February.
"While we would still expect to see an improvement in manufacturing production growth in the coming months aided by higher commodity prices and a bounceback in the agriculture sector from [2016's] drought, our expectation for a more positive contribution from the supplyside of the economy to [firstquarter] GDP growth may have to be toned down," Schultz said.
Investec economist Kamilla Kaplan said the numbers suggested the sector might contract in the first quarter of 2017 based on the fall in seasonally adjusted manufacturing production, which dipped by 0.8% in the three months ended February 2017 compared with the previous three months.
"This measure is used to calculate GDP and based on the available data so far into [the first quarter of] 2017, the sector could make another negative contribution to GDP. Manufacturing PMI survey evidence signalled a mild recovery in manufacturing activity during [the first quarter] as a whole, from the contraction in [the fourth quarter in 2016]."
Kaplan added that while the PMI indicated continued strengthening in global demand conditions, domestic demand was deemed as subdued.
Nedbank economist Nicky Weimar said the plunge in output was worse than expected but sector growth was looking up for the year. "The sector is still expected to fare moderately better in 2017, with output rising off [2016's] low base as global growth accelerates moderately and international commodity prices continue to drift higher," she said. The biggest drag came from the 4.4% month-on-month contraction in petroleum, chemical, rubber and plastics production that contributed more than one percentage point to the monthly deterioration.
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