Mariam Isa
9 January 2009
Johannesburg — MANUFACTURING output dived 4,4% in November, the biggest annual fall in more than nine years, adding to evidence that the economy's second-biggest sector is in recession.
Factory production in October was also down, by a revised 1,8% on the previous October's, making fourth-quarter contraction inevitable, data from Statistics SA showed yesterday.
Manufacturing accounts for more than 16% of gross domestic product (GDP), so the downturn has worrying implications for jobs in the sector and overall growth in the economy.
Manufacturing contracted 6,9% in the third quarter of last year, its sharpest fall in 17 years, and shed 19000 jobs.
Stanlib economist Kevin Lings said: "It is clear that the manufacturing sector is under enormous pressure, which looks set to intensify in the quarters ahead. Unfortunately, this slump is also probably going to be accompanied by job losses as companies try to bring their cost base more in line with the lower level of production."
Manufacturing has been hit hard by falling domestic demand and the deepening global recession, which has eroded demand for exports.
"The latest manufacturing figure shows that economic growth further deteriorated in the fourth quarter of last year as the global slowdown intensified," said JPMorgan economist Kgotso Radira.
"With most of SA's trade partners in recession, we expect business conditions in the sector to deteriorate further in the first half of 2009."
Economic growth stuttered to just 0,2% in the third quarter of last year -- its slowest pace in a decade -- reined in by contractions in manufacturing, retail trade and mining.
Dismal figures released yesterday back the case for further interest rate cuts by the Reserve Bank, which kicked off an easing cycle with a half-percentage-point cut last month.
The Bank is expected to slash rates by a cumulative three percentage points this year.
"The poor data support our expectations that the Bank will deliver another half-percentage-point rate cut when its (monetary) policy committee meets on February 12, with heightened risk of a larger rate cut," said Absa Capital economist Monale Ratsoma.
According to Stats SA, factory output fell 3% in November, which was roughly the same percentage as in the three months to November.
The contraction was due mainly to waning production in the basic iron and steel industry, which accounts for more than a fifth of manufacturing and plunged by more than 22% in the month.
Arcelor Mittal said early in November it was cutting steel production 30% while Highveld Steel also announced a cut.
The motor vehicle and parts industry -- which has been hit hard by fading global and local demand -- fell 10,8% in the month while basic chemical production fell 10,6%.
The three industries accounted for nearly 90% of the fall in factory output in the month.
Production of textiles and paper also slumped, as heavily indebted consumers tempered spending on durable and nondurable goods.
Only three out of 10 factory sectors grew in the quarter to the end of November: food and beverages, paper and the glass and cement industry.
In the first 11 months of last year, factory production grew just 2,1% after clocking up growth of 4,2% in 2007.
"Weak economic growth will continue to help reduce inflation pressures and set the stage for further significant easing by the Bank," said Jean-Francois Mercier, an economist at Citigroup.
"We continue to expect cuts of 50 basis points in each of the next four policy meetings, even if today's data marginally raise the odds of faster cuts."
The figures were in line with a survey showing that local factories put in their worst performance in nine years in November.
The Investec purchasing managers' index (PMI), seen as a reliable health gauge for the sector, dived to 39,5 from 46,2 in October, a record low.
The December PMI is due out next week. Analysts say a further fall is likely in the index, which measures sales orders and expectations among purchasers of supplies for factories.
Without some retail sales growth in the fourth quarter, a fall in economic output in that period seems certain. That sector, which makes up 14% of the economy, shrank 6,9% in the third quarter.
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