Manufacturing sector could be entering recession - analyst

Thursday, March 12, 2009

Pretoria - With four consecutive months of negative growth in manufacturing data, the sector could be heading for a recession with production dropping 11.1 percent from January 2009 compared to January last year.

Econometrix Treasury Management (ETM) market analyst, Karen Chow told BuaNews on Thursday that the latest data indicated the sector was under increasing pressure.

"Local retail sales have been slowing so local demand for manufactured goods would also have dropped, causing the manufacturing sector to come under pressure.

"We have had four consecutive months of negative growth, and if we have another two consecutive months of negative growth then manufacturing is officially in a recession," Ms Chow explained.

It is likely that the next two months of manufacturing data will indicate further negative growth, she said, adding the global economic environment did not bode well for growth in manufacturing at present.

South Africa's main trading partners, the United States, Europe and Japan are all currently in a recession and this will significantly impact on their demand for manufactured goods from South Africa, Ms Chow highlighted.

Despite the negative outlook for the manufacturing sector in South Africa, Ms Chow highlighted that the sector could bounce back in the second half of the year, especially as interest rates were expected to come down in the next few months.

Statistics South Africa (Stats SA) on Thursday reported that seasonally adjusted manufacturing production for the three months ended January 2009 decreased by 8.1 percent compared with the previous three months.

"This is steeper than the 5.8 percent decrease reported for the previous three-month period up to December 2008.

"Lower production levels were reported by all 10 manufacturing divisions during the latest three months," Stats SA reported.

The decrease was driven mainly by lower production in a number of divisions, including basic iron and steel, non-ferrous metal products, metal products and machinery, motor vehicles, transport equipment and petroleum, chemical products, rubber and plastic products.

The estimated total value of sales of manufactured products at current prices for the three months ended January 2009 decreased by 11 percent or R37.7 million.

Price decreases were mainly reported for the basic iron and steel, non-ferrous metal products, metal products and machinery division at a loss of R16 886 million.

The petroleum, chemical products, rubber and plastic products division also saw a drop in sales of R12.2 million.

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