/ 10 November 2009

SA’s factory output decline slows, worst over

South Africa’s factory output shrunk by less than expected in September, indicating the sector was on the mend although a recovery was expected to be slow.

Statistics South Africa said on Tuesday manufacturing output shrunk by 11,4% year-on-year in volume terms in September compared with a revised 15,2% contraction in August. A Reuters poll showed analysts expected a 13% fall.

On a monthly basis, factory production rose by a better-than-forecast seasonally adjusted 3,1% in September compared with forecasts of a 0,9% rise.

Output was up 2,6% in the three months to September.

”This is confirmation that we probably have seen the worst in the current slump. The PMI numbers have been signalling that we’re heading towards some improvement,” said Monale Ratsoma, economist at Thebe Securities.

The purchasing managers’ index climbed to 45,9 in September and hit a one-and-a-half year high of 47,6 in October, inching closer to the 50 break-even mark.

Ratsoma said manufacturing output on an annual basis would likely continue to fall but at a slower pace and could start turning positive in the middle of next year.

The sector is the second biggest in the economy, contributing about 14% to GDP. It has been hard hit by the global economic downturn and helped drag the local economy into its first recession in 17 years.

Nedbank economist Johannes Khosa said although the manufacturing data indicated the worst of the recession was over, demand-side indicators were showing the economy was still weak, supporting the case for an interest-rate cut next week.

”Other indicators, like retail sales, credit numbers, still reflect that the economy, in general, is still weak. So based on that, and lower inflation, we still expect that the Reserve Bank may opt to cut rates again at next week’s meeting.”

The central bank’s monetary policy meeting will meet from Monday, with the decision due on Tuesday. — Reuters