Mariam Isa
9 November 2009
Johannesburg — FIGURES on September's factory output will shed light on whether SA's second- biggest sector continued to perform poorly after an unexpected contraction in August.
Consensus forecasts predict that manufacturing growth fell 14% compared to the same month a year ago, after a 15% drop in August.
In the month itself, factory output is seen to have expanded a modest 0,5%, after diving 2,8% in August. The figures are due from Statistics SA tomorrow, in a week in which other domestic data is scant.
This time around, there is scope for a pleasant surprise.
SA's purchasing managers index (PMI), a key health gauge for the sector, made a spectacular leap of 6,4 points during September, taking it up to 45,9.
That still points to a fall in activity as 50 is the cutoff point between expansion and contraction, and SA's PMI has been below that level since the second quarter of last year. But it does suggest that the economy's second biggest sector is starting to recover, after taking the bulk of the blow from the local and global recession.
It also means the year-on-year decline in output could be less sharp than most expect.
Citigroup economist Jean- Francois Mercier is forecasting that factory output rose 2% in September, and shrank 12,7% compared with the same month a year ago.
"First, on a technical point, there was an extra working day in September ... (and) strikes that had affected the sector in July and August were by and large over in the last month of the quarter," Mercier says. He also cites a surge in September of the PMI, which measures the expectations and orders of purchasing managers for suppliers to SA's factories.
Another positive factor to consider is that electricity consumption rose a modest 0,8% during the month, pointing to gains in output for the big electricity users in SA's economy -- manufacturing and mines.
But other analysts have a less upbeat view .
Standard Bank focuses on the fact that the PMI, which is sponsored by Kagiso Securities, was revised down in September, after initially recording a leap of more than eight points.
It then edged up to 47,6 last month, showing that SA is clearly lagging the global recovery in manufacturing.
Standard Bank says this reveals "a stark economic reality: the manufacturing sector's recovery is hampered by rand strength".
The volatile South African unit has given up some of its gains this year, after rallying to a 14-month peak at R7,29/ in the middle of last month in response to renewed global risk appetite.
That sponsored widespread concern within the government, business circles and labour unions, as gains in the rand erode the competitiveness of local exports.
This could undermine SA's fragile recovery from its first recession in 17 years.
SA's manufacturing sector accounts for more than 14% of overall output, making it the economy's second biggest after financial services.
Investec economist Annabel Bishop says that the manufacturing data are timely for the Reserve Bank's new governor Gill Marcus, who takes the helm of the Bank, replacing Tito Mboweni, today.
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