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South Africa: Surprise Fall in Output Sparks Fear of Factory Recession
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Business Day (Johannesburg)
9 May 2008
Posted to the web 9 May 2008
Mariam Isa
Johannesburg
MANUFACTURING output fell unexpectedly in March, contracting 1,1% versus the same month last year and reviving fears of a recession in the economy's second-biggest sector, official figures showed yesterday.
The fall followed an annual rise of 3,9% in February and marked the first slump in output since September last year, when output was knocked by strikes in the vehicle industry.
Production fell 4% during the month after seasonal adjustments, and declined 0,5% in the first quarter of this year compared to the previous quarter, Statistics SA said.
"This doesn't bode well for economic growth prospects for the first quarter of this year," Standard Bank economist Danelee van Dyk said.
"Should this performance persist in the second quarter, the manufacturing sector will be in a technical recession."
So far this year, output from manufacturing, which accounts for about 16% of the economy, has proved resilient to power outages and slowing demand, eroded by rising interest rates.
Consensus forecasts had predicted the sector would expand by an annual rate of 3% in March. But the decline was in line with a sharp fall in the Investec purchasing managers' index (PMI) for the month, which hit a five-year low well below the crucial 50 level, pointing to a contraction in output.
Normally a reliable health gauge for the sector, the PMI index rebounded strongly last month, suggesting activity will recover, but at a modest pace.
"The manufacturing sector outlook remains poor in the face of slower consumer spending, higher interest rates, a weaker US economy, and Eskom power rationing," Nedbank economist Johannes Khosa said.
"Combined with the decline in other indicators such as vehicle sales and retail sales, this points to an economy losing momentum," he said.
Economists believe overall growth will slow to nearly 3% this year from 5,1% last year -- well below official forecasts of 4,0%. Initially, a rebound was anticipated next year, but more increases in domestic interest rates and a global slowdown are prompting many analysts to revise those estimates lower.
"Today's output data are unlikely to meaningfully alter perceptions of a gradual slowdown in the economy -- albeit one not large enough to stop the Reserve Bank from hiking interest rates further," Citigroup economist Jean-Francois Mercier said.
The March plunge probably overstated weakness in output as the February leap year and the timing of Easter in March had introduced higher volatility than usual , he said.
Falls in output of motor vehicles and other transport equipment along with metal products, machinery, and glass were the main culprits behind the annual decline in the data.
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During the month itself, all categories recorded declines.
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