Fin24

SA manufacturing beats forecasts

2012-12-11 13:25

Johannesburg - South Africa's manufacturing output beat market expectations by growing 2.5% year-on-year in volume terms in October from a revised 1.7% fall in September, Statistics South Africa said on Tuesday. 

Economists had forecast a 1.2% year-on-year fall in output. 

On a month-on-month basis production rose by a seasonally adjusted 1.2% and by 0.3% in the three months to October compared with the previous quarter.

Said Citadel economist Salomi Odendaal: "Production remains lacklustre; it's only increasing at 1% in the month and 3% up on a year ago but growth is still pretty weak. 

"It's clear the sector is under pressure; one of the main reasons is the weak growth globally and particularly in Europe. 

"We expect a fairly weak GDP number in the fourth quarter, we don't see manufacturing increasing sharply from these levels."   

Anisha Arora, emerging market analyst at 4Cast said: "This is quite a surprising figure given that we had forecast output at -4.5% year-on-year. 

"The industrial strike action which escalated through September and well into October not only affected mining output but also manufacturing and industry, closing plants and operations for weeks and resulting in vast losses of production volumes. 

"What's interesting is that the Kagiso PMI fell to the lowest levels since July 2011 in October and has since remained below 50, leading us to expect a pullback and negative figure in the November manufacturing print." 

Isaac Matshego, economist at Nedbank said: "The overall trend remains weak. Manufacturing conditions are quite unfavourable at the moment both locally and internationally. 

"The PMI numbers are very weak; in South Africa the Kagiso PMI number is still in negative territory, which tells us that manufacturing is not likely to rebound strongly in the coming months. 

"And now heading to the holiday season, a lot of factories will be closing so there will be that seasonal fall in production."

Market reaction

The rand was steady at R8.6899 to the dollar at 11:40 GMT. 

The yield on the three-year bond was also unchanged at 5.455% and the 2026 issue at 7.335%.

The manufacturing sector contributes about 15% of gross domestic product and is key for creating employment in an economy with an official jobless rate of over a quarter of the labour force. 

Data released by Statistics South Africa earlier in the session showed manufacturing added no jobs in the third quarter compared with the previous quarter as the sector struggles subdued demand. 

Manufacturing output increased by 2.6% in 2011, only half of the expansion seen in 2010. 

South Africa plans to spend R5.8bn over the next three years to help manufacturers affected by the global economic downturn upgrade their factories, improve products and train workers.