Manufacturing beats estimates

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IOL pic jun10 rand banknotes 100 200 in hand Associated Press File picture: Denis Farrell

Factory output beat estimates by declining at an annualised 1.5 percent in April, after a revised 1 percent expansion in March, data released by Statistics SA yesterday showed.

Seventeen economists polled by Bloomberg calculated a 5.9 percent decline while those polled by Reuters predicted a 5.5 percent contraction.

The forecasts were based on weak underlying conditions and base considerations.

Manufacturing production rose by 3.5 percent month on month but was down 1.8 percent in the three months to April.

The largest contributors to the annual decline were lower output in motor vehicles, parts and accessories and other transport equipment and petroleum, chemical products, rubber and plastic products.

Manufacturing, which makes up 15 percent of gross domestic product (GDP), shrank 4.4 percent in the first quarter.

Dennis Dykes, the chief economist at Nedbank, and Nicky Weimar, the bank’s senior economist, said according to the Kagiso purchasing managers’ index for May, underlying trading conditions deteriorated.

“The weaker rand and stronger global demand are still expected to lift production and exports in the second half of the year. Growth rates for 2014 may also be enhanced by the low base created in the strike-infected second half of 2013. Considerable downside risks remain, given rising production costs, uncertain and insufficient power supply, other infrastructure constraints and the strained relationship with labour,” they said.

Nedbank said there was little evidence of a significant pick-up in the second quarter. There was also no end to the platinum strike. “This will probably result in another disappointing outcome for GDP in the second quarter. Despite this, with inflation rising and the rand still vulnerable, we anticipate mild tightening towards year end.”

Manisha Morar, an economist at ETM Analytics, said weak demand, domestic and foreign, alongside supply-side challenges such as power constraints, restrictive regulation and high operating costs, would keep manufacturing output growth constrained in coming months. – Business Report



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