Shock factory slowdown raises fears over growth

MANUFACTURING output fell unexpectedly by 3.1% in February and by 2.9% year on year to its lowest level since March last year, Statistics SA data showed yesterday, leading to renewed concerns over the recovery of the economy’s second-biggest sector. Seasonally adjusted production was down 3.1% in the month.

“It was an unexpectedly poor outcome which, building on the poor retail sales figure for January and weak consumer confidence, could increase fears of slowing economic growth in 2013,” Investec Group SA chief economist Annabel Bishop said.

MANUFACTURING output fell unexpectedly 3.1% in February — and 2.9% year on year — to its lowest level since March last year, Statistics SA data revealed yesterday.

This prompted fresh concerns at the recovery of the economy’s second-biggest sector and its implications for overall economic growth.

Seasonally adjusted production was down 3.1% in the month.

Lower output in the basic iron and steel, food and beverages, glass and nonmetallic mineral products divisions led the overall decrease in manufacturing output. Production in the sector had been expected to improve, given that a leading indicator of activity in the sector — the Kagiso purchasing managers’ index (PMI) — had climbed above 50 in February, suggesting an expansion in manufacturing activity.

Although monthly data is seen as volatile, any unexpected negative movements in manufacturing figures are viewed with concern as the sector accounts for more than 15% of gross domestic product (GDP).

“It was an unexpectedly poor outcome which, building on the poor retail sales figure for January and weak consumer confidence, could increase fears of slowing economic growth in 2013,” chief economist at Investec Annabel Bishop said.

The economy was expected to grow 2.7% this year from 2.5% last year. Of greater concern for the sector was a decline in the PMI in March. It fell below 50, suggesting there could be further contraction in activity, dimming prospects for the second quarter.

“The decline in the PMI in March suggests that manufacturing production growth should moderate as we head into the second quarter.

“The slight recovery in the exchange rate, coupled with weak growth, could lead to fresh pressure on the Reserve Bank to cut rates later,” said Carmen Nel, a senior global markets economist at Rand Merchant Bank.

Other analysts, however, say that with little less room to reduce interest rates due to rising inflation, the Bank will rather leave rates on hold longer than expected.

“The current monetary policy committee stance is already stimulatory. I expect the manufacturing sector to pick up by the end of this year. We have to wait for global demand to pick up to support this industry,” said Merina Willemse of the Efficient Group economist.

While the manufacturing sector’s prospects are seen to be improving later this year, views on the outlook for the mining sector were divided.

Mining production rose 7% year on year in February after a slightly downwardly revised 6.7% (7.3% previously) year-on-year increase in January, mainly supported by contributions from platinum group metals. The February mining data was higher off a low base as a result of strikes at Impala Platinum that stopped production.

Nedbank economist Isaac Matshego said the industry faced rapidly rising costs, particularly higher wages and increasing energy costs — all factors that would cause production not to rise strongly this year. He said any rise in mining production would be due mainly to some normalisation of activity from strikerelated disruptions last year.