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Send  Print  Share  RSS  Twitter  12 Jan 2010

FOCUS: Manufacturing`s slow recovery continues

Johannesburg, Jan 12 (I-Net Bridge) – The recovery in South Africa`s manufacturing sector continued in November, albeit at a slow pace, data released by Statistics South Africa has showed.
The physical volume of manufacturing in South Africa was reported at an improved -4.7% year-on-year (y/y) in November from a revised -9.6% (-9.3%) y/y in October.
Stats SA said although the year-on-year growth rate in manufacturing production remained negative in November, this was the least negative annual growth rate recorded so far in 2009.
André Roux, head of fixed income at Investec Asset Management, said the figures provide yet another clear indication that the recovery is continuing, given that the short-term momentum in the sector remains positive.
"The numbers were better than expected and the recovery in vehicle manufacturing seems to be particularly strong in the short term," said Roux.
"However, the recovery is painfully slow, as output is still some 4.7% below the comparable period last year. It is going to take several years for manufacturing activity to get back to the levels before the global crisis ensued," he added.
Danelee van Dyk, Economist at Standard Bank, said the advance was larger than her expectation for an improvement to -5.4% y/y.
Relative to the low point reached in April last year, production has increased by 5.8%. On a quarterly basis, output advanced by 2.9% in the three months to November when compared to the preceding three months, she noted.
Sectors supporting this advance are the basic iron and steel sector (6.5% q/q), producers of petroleum, chemicals and rubber (3.5% q/q) and motor vehicles and parts (7.7% q/q), which contributed 1.3, 0.9 and 0.7 percentage points, respectively, she pointed out.
"This bodes well for GDP in Q4, as the sector could contribute at least a full percentage point to growth even if there is no further growth in manufacturing output in December."
She added that today`s improvement is encouraging from a growth perspective, but underlying trends reveal that the internal growth dynamic may still be too weak to drive the sector meaningfully forward.
"Several headwinds will render further advances challenging. These include the impact of sustained rand strength, global supply constraints from the onslaught of the recession, and rising commodity price pressures. Muted investment intentions and still high wage demand pressures are among other factors that will limit expansion and employment prospects, suggesting that the sector`s overall contribution to GDP may decline this year," she added.
AbsaCapital analyst Jeffrey Schultz said the numbers are a good start to what they believe will be generally a more positive 2010 for the South African economy.
"While the y/y rate of growth in manufacturing production remains in negative territory, we note the pace of contraction in the sector has slowed significantly in recent months where the current growth rate of -4.7% y/y is significantly better than the -21.7% y/y low reached in April last year.
"Furthermore, the fact that SA`s PMI jumped above the neutral level of 50 in November for the first time in 18 months with, notably, the new sales orders sub- component of the headline index currently jumping a sizable 5.5 index points to 54.5 in November, and PMI inventories just shy of breaking through 50, suggests that there are some early prospects of inventory rebuild in 2010 following the depletion in 2009," Schultz said.
He added that AbsaCapital expects SA companies to begin restocking, along with the fact that momentum in production remains positive (+12.3% q/q saar) and slowly increasing levels of business confidence, should continue to bode well for production in coming months.
"We therefore look for production to enter positive y/y growth territory in Q1 10, helped also by favourable base effects stemming from Q1 09`s near-23% q/q saar decline in production," he concluded.
By Jacqueline Mackenzie
I-Net Bridge.
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