GDP: Manufacturing Sector Slips Out of Contraction in Q1 2021

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The Manufacturing sector’s real GDP turned positive at a rate of 3.4% y/y in Q1 2021 following three consecutive quarters of negative growth since the last positive growth in Q1 2020 (0.4% y/y) and marking the highest growth recorded since Q1 2018.

The improvement posted in Q1 2021 is reflective of the gradual recovery in the economy following the covid- 19 impact across the sector’s value chain.

Additionally, we highlight the government’s support in revitalizing the sector through its various intervention programmes aimed at stimulating recovery. Our searchlight beams on its increased contribution of 10% to the GDP in Q1 2021 from 9% recorded in 2020.

GDP Manufacturing Sector
Photo by Science in HD

In the wake of the pandemic, manufacturing activities within the country were severely impacted as the lockdown coupled with existing structural bottlenecks forced many businesses out of operations.

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Several companies saw demand for their goods plummet on the back of movement restrictions and consumer behaviour turned towards the search of 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. This was evident in February Manufacturing PMI which increased to 48.7 points from 44.9 points in January 2021 albeit still below water.

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As the economy continues to recover, we expect further improvement in PMI readings. 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, achieving self-sufficiency in local production will remain a mirage in our view.

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