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SA manufacturing up 3.4% in November

Jan 10 2013 14:07
Johannesburg - South Africa's manufacturing output grew 3.4% year-on-year in volume terms in November, above expectations, with a revised 2.7% in October, Statistics South Africa said on Thursday.

Economists had forecast 2.2% year-on-year growth in factory output.

On a month-on-month basis production rose by a seasonally adjusted 2.3% and by 0.8% in the three months to November compared with the previous three months.

Comments ETM economist Jana le Roux: "The details of the data show it was petroleum, chemical products, rubber and plastic products that were the main driver, which has been the case over previous months.

"It appears as though the effect of the Sarb's (South African Reserve Bank) policy loosening is filtering through to boost the capital goods sector, despite aggregate demand conditions remaining somewhat subdued.

"We believe that even though the data is likely to mute calls for further Sarb policy easing in the short term, there remains a risk of further rate cuts later in the year.

"The reason why we see risks for further rate cuts is because of the wall of money that continues flooding into emerging markets."

Mandla Maleka, economist at Eskom Treasury, said although it is a slight improvement from the previous reporting period, it still is very low "by standards that we would have loved to see".

"To support economic growth, you will need manufacturing to be at least near your typical double digits growth, for now it's a far-fetched wish. Maybe the December reading may register a respectable number compared to 3.4%.

Maleka added that rates have to remain on the low side to support manufacturers to borrow cheaply to improve their production capacity. "But then again if we do not have any movement in the euro area, I do not think our manufacturing is going to be supported.

"So rates-wise, I think the Reserve Bank is going to keep them low for an extended period of time."

"Overall, it is clear we over-estimated the negative impact of the labour strikes but given reports about employment in the mining and manufacturing sectors, such as the recent Adcorp Employment Index, which reported 15 000 lost jobs in December, this is still a testament to the negative ramifications of last year's unrest," said Anisha Arora, emerging market analyst at 4Cast.

"This month's figure was decent but still has plenty of room to improve; especially as export demand has waned, creating stock pileups, while the Kagiso PMI suggests manufacturing has been in contraction from September to November.

"Thus we still look for weaker prints on the horizon, but for now this should help the MPC (monetary policy committee) keep rates stable at the end of January."

Peter Attard Montalto, emerging market economist at Nomura said it appears the upstream and downstream impacts of mining unrest are not feeding through yet and are having a slightly longer lag than we expected.

"Strong manufacturing print... this number should secure rates unchanged at the end of this month though by the March meeting we should have got some weaker data starting to come through including fourth quarter GDP."
The rand initially firmed to R8.5999/$ from R8.6185 prior to release of the data at 13:00. It however came back to R8.6130 by 13:37.

The yield on the benchmark 2026 issue was slightly lower at 7.14% from 7.145% while that for the two-year bond was steady at 5.32%.

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.

Manufacturing added no jobs to the economy in the third quarter compared with the previous quarter as the sector struggled with subdued demand, data showed in December.

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.


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