SA's manufacturing output plummets
Manufacturing output in South Africa plummeted 7,0% year-on-year in December from the previous month’s revised 6,4%.
In the fourth quarter of 2008, manufacturing production fell 5,7%, substantially worse than the contraction of 2,7% in the third quarter last year.
Absa Capital said on Tuesday the data provide further evidence that the South African economy is struggling under the pressures of the global economic slowdown.
“The production cuts and extended holiday periods in a number of steel and motor vehicle manufacturing plants, as well as the high weighting of their products to overall manufacturing production, validate today’s grim number,” it said.
“As far as growth is concerned, we believe the South African economy is in the midst of a technical recession with many other recent high-frequency indicator releases [vehicle and retail sales] adding to the gloomy outlook. These, together with today’s poor manufacturing number, lead us to believe
that gross domestic product growth should contract 1,0% to 1,5% in the fourth quarter of 2008,” Absa Capital added.
It said the detail yielded few surprises with motor vehicle parts and accessories falling 33,1% year-on-year (previously 23,8%), in line with the recent contraction in motor vehicle sales (35,4% year-on-year) and confirming the bank’s expectations that the extended shutdown of motor vehicle plants hampered production.
Basic iron and steel as well as petroleum, chemicals, rubber and plastic production also contracted heavily by 21% and 4,3%, respectively. Although a marginal improvement from November, furniture and other manufacturing divisions continued to reflect pressure on durable goods spending, falling 5% in December (6,4%).
PMI data continue to suggest that the first quarter of 2009 is unlikely to provide any kind of respite for manufacturing activity, with the recent January PMI new sales orders sub-index falling to 33,2% in January from 37,5% the prior month—again the lowest reading in the history of the index.
“Although the South African economy may not be experiencing the magnitude of problems experienced by many countries in the developed world, the situation is likely to get worse before it improves. To give an idea of the extent of the global recession, one only needs to look at the extent of the slowdown in the United States, Eurozone and China.
“While the contraction in domestic activity may not be as pronounced as in these countries, it gives a good indication of the extent of the slowdown in global economic activity and is consistent with our view of deterioration in South Africa’s export growth.
“Considering the worsening global environment, we continue to forecast poor growth prospects in South African manufacturing activity for much of 2009 as both domestic and global demand dries up. For rates, the poor data support our call for a 100 basis points cut at the next MPC [Monetary Policy Committee] meeting. The official date remains April 16, though continued deterioration in the growth outlook could spark an emergency MPC meeting following last week’s comments by the South African Reserve Bank governor,” Absa Capital said.—I-Net Bridge