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Johannesburg - Manufacturing production plummeted 3.6% in August from July on a seasonally adjusted basis, as the strike in the vehicle took its toll on output.
The figure doesn't augur well for gross domestic product (GDP) growth in the third quarter of this year.
On a year-on-year (y/y) basis, output was up 5.3% but growth rate was down from July's 7.2%. The market had expected an increase of 8.3% y/y.
The seasonally adjusted month-on-month (m/m) rate is more important for the GDP calculation, because GDP growth is calculated as a quarter-on-quarter, seasonally adjusted and annualised change.
Nedbank economist Carmen Altenkirch said the big m/m decline was partly due to a 19% fall in production in the vehicle industry as a result of a strike.
The sector makes up about 11% of total manufacturing output. Activity in the iron, steel, metal products and machinery sectors also fell sharply over the month.
Rate cut possible but not likely
She said y/y manufacturing production growth was expected to remain subdued in the months ahead, mainly reflecting the effect of a higher base in the second half of last year, softer global growth, a strong rand and subdued domestic spending.
"Today's manufacturing number was distorted by the strike in the vehicle industry. However, other sectors - particularly those facing the export sector - were extremely weak. These figures confirm our view that economic growth will be slow during the remainder of 2010 and into 2011.
"This, combined with a strong rand and subdued inflation outlook, makes one last interest rate cut possible. However, on balance we still feel rates will remain unchanged at their currrent low level until the first quarter of 2012," Altenkirch said.
Though weak, the m/m decline follows increases of 0.7% in July and 0.9% in June.
Looking ahead, the picture looks bleak. The Kagiso Purchasing Managers' Index (PMI) showed that the PMI fell below the 50 level in September, which is consistent with contraction in the industry.
- Fin24.com
The figure doesn't augur well for gross domestic product (GDP) growth in the third quarter of this year.
On a year-on-year (y/y) basis, output was up 5.3% but growth rate was down from July's 7.2%. The market had expected an increase of 8.3% y/y.
The seasonally adjusted month-on-month (m/m) rate is more important for the GDP calculation, because GDP growth is calculated as a quarter-on-quarter, seasonally adjusted and annualised change.
Nedbank economist Carmen Altenkirch said the big m/m decline was partly due to a 19% fall in production in the vehicle industry as a result of a strike.
The sector makes up about 11% of total manufacturing output. Activity in the iron, steel, metal products and machinery sectors also fell sharply over the month.
Rate cut possible but not likely
She said y/y manufacturing production growth was expected to remain subdued in the months ahead, mainly reflecting the effect of a higher base in the second half of last year, softer global growth, a strong rand and subdued domestic spending.
"Today's manufacturing number was distorted by the strike in the vehicle industry. However, other sectors - particularly those facing the export sector - were extremely weak. These figures confirm our view that economic growth will be slow during the remainder of 2010 and into 2011.
"This, combined with a strong rand and subdued inflation outlook, makes one last interest rate cut possible. However, on balance we still feel rates will remain unchanged at their currrent low level until the first quarter of 2012," Altenkirch said.
Though weak, the m/m decline follows increases of 0.7% in July and 0.9% in June.
Looking ahead, the picture looks bleak. The Kagiso Purchasing Managers' Index (PMI) showed that the PMI fell below the 50 level in September, which is consistent with contraction in the industry.
- Fin24.com
