South Africa’s economy is “well placed” to benefit when global economic growth and demand improve this year, Department of Trade and Industry chief economist Stephen Hanival says, although some economists warn that the growth in manufacturing will be modest.

While better than expected retail, mining and manufacturing production data were pointing to economic growth having improved in the final quarter of last year, the outlook among many economists is for the manufacturing sector and the economy to post modest growth this year.

Economists are looking for economic growth of about 2.5% this year — which is slightly less than the Reserve Bank’s 2.8% and the Treasury’s 3%.

Mr Hanival said recent data showing an increase in manufacturing production was positive for other sectors as manufacturing drew inputs from a range of primary and tertiary sectors such as agriculture, mining, electricity and services. Manufacturing production rose 2.5% in December compared with a year ago, from 0.3% in November.

“Given that the full-year increase in production was based on increases in seven of the 10 manufacturing sectors, this suggests that a broad-based recovery is increasingly taking hold in the manufacturing sector,” he said.

With global economic demand forecast to improve and the rand expected to continue maintaining a weaker bias, local exporters were set to benefit.

The majority of local producers who participated in a recent survey by the Manufacturing Circle said the business environment was either stable or fragile in the fourth quarter of last year. Most also expected fragile or weak conditions in the first two quarters of this year. This suggests they might only be expecting a meaningful pick-up in global demand in the second half of the year.

Many of those surveyed identified the prospects of industrial action, weak domestic demand, increased competition and rising costs associated with currency weakness as the main challenges for the sector.

Rand weakness has been the driving force behind higher fuel prices in recent months, adding pressure to already strained producers. The petrol price jumped 39c/l to R13.96c/l this month, with more increases expected next month.

Despite all of the challenges, Mr Hanival said reports of investments worth approximately R5bn in the automotive sector and investments in the metal and engineering industries all suggested that manufacturing “may be turning a corner”.

Economists were expecting the growth in mining and manufacturing production in the fourth quarter to have been among the main supporters of economic growth in the fourth quarter.

Capital Economics Africa economist Shilan Shah said his company was forecasting seasonally adjusted and annualised gross domestic product (GDP) growth of 2.8% in the fourth quarter of last year, compared with 0.7% in the third quarter. Statistics SA will release the GDP figures on Tuesday next week.

“Much of this can be explained by a rebound in mining production, after the sector slowed in Q3 (the third quarter) due to prolonged strike action,” Mr Shah said.

Mining output rose 12% year on year in December, up from 5.2% in November, and was 4.5% higher quarter on quarter, according to Statistics SA.

However, continuing strikes in the platinum sector could cause a moderation in mining production growth.