Johannesburg — FACTORY output plunged by a record 15% in February, much more sharply than expected and steering SA inevitably towards its first recession in 17 years.

Yesterday's official data suggested the embattled sector, SA's second-biggest, would remain in distress until there was a rebound in the shrinking global economy.

At the same time a survey from the South African Chamber of Commerce and Industry showed that business confidence fell to a seven-year low last month.

"The manufacturing industry is in deep trouble and there can be little doubt that by the end of the first quarter of 2009 the South African economy found itself solidly in recession," said Vunani Securities economist Johan Rossouw.

Recent gains in the rand -- which has rallied about 5% so far this year -- would hamper local exports of minerals and manufactured goods in the face of a global slump in demand, he said.

This is likely to encourage the Reserve Bank to cut interest rates aggressively again, after lowering its key repo rate by 2,5 percentage points to 9,5% since December.

"The very sharp deterioration in the real economy will keep the MPC (monetary policy committee) in a cutting mood," Absa Capital economist Jeff Gable said. "Look for a further percentage point drop at each of the next two monetary policy meetings."

The Bank's seven-member MPC meets at the end of this month and again next month.

Manufacturing accounts for about 16% of SA's economy and has been hit hard by the downturn in global and domestic growth. Its contraction of 22% in the fourth quarter of last year led to a 1,8% fall in overall output, the first in SA for a decade.

There is likely to have been a similar outcome in the first quarter of this year. Statistics SA's data yesterday revised the fall in factory output in January compared with the same month last year down to 12,9% from a previous 11,1%.

Consensus forecasts from Bloomberg had predicted a year-on-year fall of 11,5% in February.

The slump was led by steep plunges in output from the beleaguered motor industry, along with basic iron, steel and metals, and petroleum and chemicals.

"Today's data magnify the extent of the contraction facing SA," said Standard Bank economist Danelee van Dyk. After a dismal reading from the purchasing managers' index (PMI) last month, it was "virtually impossible to see a recovery in the manufacturing sector soon", she said.

Van Dyk was referring to the industry survey seen as a reliable health gauge for the sector. SA's PMI fell to new record lows in both February and March, sinking further below the neutral 50 level for each of the past 11 months. That is in line with the global trend.

Investec economist Annabel Bishop said the data tied in with her view that the economy would shrink until the fourth quarter of this year, with a "weak recovery" taking hold only next year.

"The economy is likely to contract by 1% this year and record weak growth of close to 2% next year," she said.

During the three months to the end of February, output fell by a seasonally adjusted 9,8%, with production falling in all 10 manufacturing divisions. In the month itself, production fell by 0,8%.

Van Dyk said rising vacancy rates on commercial properties may signal waning demand for materials and equipment used in construction.