‘Signs of life’ in output may mean rate rise

MANUFACTURING output rose in the third quarter — a positive indication that the country may have avoided a technical recession.

But the downside is the Reserve Bank’s monetary policy makers may take this as a sign that the weak economy is improving, and support an interest rate increase next week. Manufacturing makes up 12.5% of gross domestic product (GDP), making it the fourth-biggest contributor to the economy.

Statistics SA data showed yesterday that manufacturing production rose 0.9% in September, painting a rosier picture of the economy, as in August it contracted 0.3%.

This month, Stats SA will release third-quarter GDP data, which is expected to show the economy fared better than in the second quarter. The “signs of life” in manufacturing will likely embolden the Bank to raise the repo rate to 6.25% from 6%, said Mr Ashbourne.

The Bank’s monetary policy committee, which will hold its last meeting of the year next week, has said macroeconomic data will inform its rate decision.

The manufacturing data supported the view that the economy avoided a technical recession, BNP Paribas Securities SA economist Jeff Schultz said. However, Manufacturing Circle executive director Philippa Rodseth said the outlook for manufacturing operating conditions “remains fragile” owing to a poor domestic and a volatile global economic environment.

Manufacturers have to contend with weak domestic demand, rising operating costs, lower global commodity prices and an erratic electricity supply. Dwindling demand is one of the main reasons SA’s capacity utilisation has weakened.

Petroleum, chemical products, rubber and plastic products, and food and beverages fuelled the positive movement in manufacturing.

Motor vehicles, parts and accessories and other transport equipment, basic iron and steel, nonferrous metal products, metal products and machinery divisions experienced lower production.

Seasonally adjusted manufacturing sales increased 1.7% in September, after having contracted 0.2% in August — partly pointing to the benefits of a weak rand for producers.