Monday, August 30,
2021 / 12:55 PM / by CSL Research / Header Image Credit: CSL Research
For the second consecutive quarter, the Manufacturing sector's real GDP grew by 3.49% y/y in Q2 2021, the highest growth since Q1 2015. Though this can be largely attributed to the low base in the prior year, there are indications that conditions for manufacturing are improving. Also, the readings for Manufacturing PMI rose to 46.6 in July from 45.5 in June 2021, showing a gradual recovery of output growth, though still below the 50-index point mark. Meanwhile, the continued efforts by the government to reposition critical sectors such as manufacturing on the path of growth have proved supportive.
We recall that the outbreak of the coronavirus negatively affected the manufacturing activities, touching a low of -8.78% in Q2 2020. This coupled with existing structural bottlenecks forced many businesses out of operations. Several companies saw demand for their goods plummet on the back of movement restrictions, and consumer behaviour turned towards the search for essential items. However, since the reopening of the economy, we believe gains from exports via open borders and increased credit supply to manufacturing businesses cut the sector some slack from the harsh effects of the pandemic.
As the economy continues to recover, we expect further improvement in the manufacturing sector. On the flip side, FX constraints, supply chain disruptions and weak disposable income are all factors that will continue to undermine growth in the sector. The need to boost the manufacturing sector is pertinent to achieving the country's output projection and if structural constraints remain unaddressed, growth in the manufacturing sector will remain lackluster. Also, we observed that the negative impact of the oil refining subsector has continued to drag performance in the manufacturing sector with consolidated refining capacity at zero levels.
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