Manufacturing set to slow further

Johannesburg - January manufacturing production data due out today is likely to continue to show the impact of weak domestic and falling global demand on the industry, with consensus expectations for an 8% year-on-year (y/y) fall from the previous month's -7% y/y print, says Absa Capital in a research note on Thursday.

"Furthermore, last week's February's business sub-component of PMI (34.0) and yesterday's poor business confidence data (27) support the drab outlook for the domestic manufacturing sector, suggesting that the sector remained under pressure in Q1 09.

"Other high-frequency indicators, including electricity production and new vehicle sales, continue to point to an economy that is under tremendous strain from both waning domestic and global demand, and we expect Q1 09 to show a further contraction of about 1% in economic activity," say the economists.

They add that while the likelihood of an unscheduled MPC meeting, hinted at by governor Mboweni on February 6, has all but evaporated, poor high-frequency data, along with their expectation that inflation will continue to moderate in the coming months, would allow the Sarb to cut rates aggressively at the scheduled mid-April MPC meeting.

"Even though we think that there is sufficient room for a 200 basis point cut, the Sarb may decide to err on the side of caution and cut rates by only 150 basis points (in line with current market expectations); highlighting the pass through effects of the currency depreciation.

"We see the large (but set to shrink) current account deficit (7.9% GDP in Q3 08) and past wage and salary increases in excess of the 6% inflation target ceiling as key risks to the inflation outlook."

- I-Net Bridge