Mariam Isa
9 November 2007
Johannesburg — MANUFACTURING fell in September for the first time in three-and-a-half years -- knocked mainly by a strike in the motor industry, but also by a slowdown in consumer demand blamed on rising interest rates.
Factory output, which accounts for more than 16% of the economy, fell 1,4% in the year to September after a rise of 5,2% in August, marking the first annual contraction since February 2004.
A rebound is expected for last month, but analysts said the outlook for the economy's second-biggest sector had deteriorated due to gains in the rand, which both erode the competitiveness of SA's exports and make imports more affordable.
"The manufacturing sector remains plagued by relative rand strength, slowing household demand, high production costs and an easing in global manufacturing conditions," Standard Bank economist Danelee van Dyk said.
She singled out the effect of gains in the rand, which rallied 3,8% last month against a trade-weighted basket of currencies, in which the euro carried most of the clout. This is a more significant measure of the rand's value than its level against the dollar, which has dived against most currencies this year.
"The rand's strength has heightened import substitution by retailers and wholesalers, negatively affecting the sector's growth outlook for the rest of the year," she said.
In a separate report yesterday, the Bureau for Economic Research said that for the first time in four years, there was clear evidence of a slowdown in SA's economic growth, which reached 5% over each of the past three years -- a 25-year peak.
Growth was still likely to amount to 5% this year, but would moderate close to 4,5% next year, before gathering momentum in 2009. It said this forecast was in line with estimates from the treasury in its medium-term budget policy statement issued last week.
But the Reserve Bank is unlikely to put much weight on data showing that growth in retail sales, credit and manufacturing are all moderating when it makes its decision on interest rates next month.
With inflation set to climb further above its 3%-6% target and remain above the upper limit until the middle of next year, there is still a good chance the Bank will hike lending rates again after raising them by 3,5 percentage points since June last year.
"For monetary policy, the Bank is likely to look past the data with its focus largely on the inflation target ... a not-so-comforting outlook," Absa Capital said.
Manufacturing fell a seasonally adjusted 4,9% in September, after rising a meagre 0,9% in August, yesterday's Statistics SA data showed. Production in motor vehicle components dived 30% in September due to a three-week strike, which also hit car production. But output in nine out of 10 industries slowed, suggesting the trend was broad-based.
"Even though this month's numbers are distorted by the strike , the underlying trend appears to be softer, albeit moderately so," Nedbank economist Nicky Weimar said.
The data showed that in the third quarter of this year, manufacturing fell 0,6% compared with the second quarter -- the first quarterly decline since 2003, when the sector mired in a recession.
"For the economy to return to 5% growth, the manufacturing sector must once again start to pull its weight. The rate of expansion will not create the jobs required by the economy to increase its overall welfare," said Efficient Research economist Nico Kelder.
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