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SA manufacturing up

South Africa's manufacturing output grew 3.4 percent year-on-year in volume terms in November, above expectations, compared with a revised 2.7 percent in October, Statistics South Africa said on Thursday.

Economists had forecast 2.2 percent year-on-year growth in factory output.

File picture: Free Images. Credit: FREE IMAGES

On a month-on-month basis production rose by a seasonally adjusted 2.3 percent and by 0.8 percent in the three months to November compared with the previous three months.

ANALYST COMMENT

JANA LE ROUX, ECONOMIST, ETM

“The details of the data show it was petroleum, chemical products, rubber and plastic products that were the main driver, which has been the case over previous months.

“It appears as though the effect of the SARB's (South African Reserve Bank) policy loosening is filtering through to boost the capital goods sector, despite aggregate demand conditions remaining somewhat subdued.

“We believe that even though the data is likely to mute calls for further SARB policy easing in the short term, there remains a risk of further rate cuts later in the year.

“The reason why we see risks for further rate cuts is because of the wall of money that continues flooding into emerging markets.”

MANDLA MALEKA, ECONOMIST, ESKOM TREASURY

“It's a slight improvement from the previous reporting period, but nevertheless it is still very low by standards that we would have loved to see.

“To support economic growth, you will need manufacturing to be at least near your typical double digits growth, for now it's a far-fetched wish. Maybe the December reading may register a respectable number compared to 3.4 percent.

“Mind you, manufacturing accounts for about 15 percent of GDP, so if it is going nowhere, then even in our GDP status we are not going any far.

“Rates have to remain on the low side to support your manufacturers to borrow cheaply to improve their production capacity.

“But then again if we do not have any movement in the euro area, I do not think our manufacturing is going to be supported.

“So rates-wise, I think the Reserve Bank is going to keep them low for an extended period of time.”

ANISHA ARORA, EMERGING MARKET ANALYST, 4CAST

“Overall, it is clear we over-estimated the negative impact of the labour strikes but given reports about employment in the mining and manufacturing sectors, such as the recent Adcorp Employment Index, which reported 15,000 lost jobs in December, this is still a testament to the negative ramifications of last year's unrest.

“This month's figure was decent but still has plenty of room to improve, especially as export demand has waned, creating stock pileups, while the Kagiso PMI suggests manufacturing has been in contraction from September to November.

“Thus we still look for weaker prints on the horizon, but for now this should help the MPC (monetary policy committee) keep rates stable at the end of January.”

PETER ATTARD MONTALTO, EMERGING MARKET ECONOMIST, NOMURA

“Strong manufacturing print. It appears the upstream and downstream impacts of mining unrest are not feeding through yet and are having a slightly longer lag than we expected.

“This number should secure rates unchanged at the end of this month though by the March meeting we should have got some weaker data starting to come through including fourth quarter GDP.”

MARKET REACTION

The rand initially firmed to 8.5999 to the dollar from 8.6185 prior to release of the data at 13:00 SA time. It however came back to 8.6130 by 13:37 SA time.

The yield on the benchmark 2026 issue was slightly lower at 7.14 percent from 7.145 percent while that for the two-year bond was steady at 5.32 percent.

BACKGROUND

- The manufacturing sector contributes about 15 percent of gross domestic product and is key for creating employment in an economy with an official jobless rate of over a quarter of the labour force.

- Manufacturing added no jobs to the economy in the third quarter compared with the previous quarter as the sector struggles subdued demand, data showed in December.

- Manufacturing output increased by 2.6 percent in 2011, only half of the expansion seen in 2010.

- South Africa plans to spend 5.8 billion rand over the next three years to help manufacturers affected by the global economic downturn upgrade their factories, improve products and train workers. - Reuters

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