SA manufacturing contraction eases, recovery on track

South Africa’s manufacturing output shrank at a much lower rate in the year to November compared with October, signalling that the sector and the broader economy are on track for a steady recovery after last year’s recession.

The data reinforces the view that interest rates are likely to stay on hold for most of this year after the central bank reduced them by 500 basis points between December 2008 and August last year to help the struggling economy.

Data from Statistics South Africa on Tuesday showed that factory production contracted by 4,7% year-on-year in volume terms in November compared with a revised 9,6% fall in October, from 9,3%.

“It’s fairly in line with the improvement in economic conditions that we have been anticipating,” said Kabelo Masike, an economist at Eskom.

“It’s still in negative territory, but at a slower pace of contraction, adding credence to the view that the economy could grow at a slightly increased pace during the next quarters.”

The manufacturing sector is the second biggest contributor to the economy, accounting for about 14% of GDP, and is a key employer.

Latest data from Stats SA shows the sector expanded by 7,6% in the third quarter of last year, helping pull the economy out of its first recession in nearly a decade.—Reuters