South Africa’s manufacturing output shrank by a worse-than-expected 15% year-on-year in August, showing the sector remains deep in trouble and reviving expectations interest rates may be cut again this year.
Statistics South Africa said on Thursday year-on-year factory output fell for the 11th consecutive month, after a 13,5% contraction in July.
Manufacturing, the economy’s second-biggest sector, has been in freefall this year and the main drag on an economy that slumped to its first recession in 17 years at the start of 2009.
Stats SA said production also declined compared with July, sliding 2,8% and confounding expectations of growth. There was some light at the end of the tunnel, though, with the output number for the three months to August showing 0,8% growth compared with the previous three months — the first increase in more than a year.
A Reuters poll of 10 economists had forecast a year-on-year decline of 11,4% and month-on-month expansion of 1,5%.
Analysts said the data showed the sector had continued to struggle, depressed by weak local demand and with exports under pressure from a relatively strong rand currency.
”It’s a rather disappointing number. We were looking for some stabilisation in the sector. It shows the manufacturing sector is still trying to get out of recession [and] remains very weak,” Citadel economist Salomi Odendaal said.
The monthly decline came despite the purchasing managers’ index (PMI), a leading indicator for manufacturing, edging higher in August. A sharp rise in the PMI in September may see a recovery in that month, however.
Some economists suggested the data could open the way for another cut in interest rates, particularly if price pressures keep easing.
”The number is worse than expectations. But we have to remember this is a volatile number and the rate of decline is weakening from around 21% we saw in April,” Nedbank economist Johannes Khosa said.
”Our expectation is that of another 50 basis-point cut in interest rates. We think the inflation outlook is improving and the economy is generally weak.”
The central bank has cut the repo rate by five percentage points since December to try to help revive the economy, but kept it steady at 7% at its September policy meeting, given inflation remains above the 3% to 6% target range.
Its next rates meeting is on October 22. — Reuters