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Media Centre  |  News

Manufacturing remains weak: Stats SA

Johannesburg 11 August 2009 Sapa

Manufacturing production during the month of June remained weak, data from Statistics SA showed on Tuesday.

Production dropped 17.1 percent from a year earlier after declining a revised 17.2 percent in May, the Pretoria-based agency added.

June`s decrease was mainly due to lower production in the basic iron and steel, non-ferrous metal products, metal products and machinery division (-24,3 percent and contributing -5,4 percentage points), followed by motor vehicles, parts and accessories and other transport equipment (-32,8 percent and contributing -3,5 percentage points) and the petroleum, chemical products, rubber and plastic products division (-14,7 percent and contributing -3,5 percentage points), Statistics SA said.

Nedbank Group`s economic unit said, in its commentary on the data, underlying conditions in manufacturing production would remain weak in the months ahead as the local and global economic climate remained depressed.

"Production in sectors that supply the local consumer market may moderate further as consumer demand is restrained further by the increase in unemployment, the decline in disposable income as well as high household debt levels," Nedbank said.

The sectors depending on capital formation were also expected to experience further weakness as fixed investment activity, by the private sector particularly, was expected to decline in 2009 and 2010 - mostly offsetting the boost from continued growth in infrastructure spending by general government and public corporations.

Nedbank said export-orientated industries would remain under pressure "as developed economies are forecast to remain weak throughout 2009".

Some recovery was expected in 2010 as the local economy recovered due to lower interest rates, more comfortable debt levels and improved confidence, while the massive fiscal stimulus packages announced in 2008 and 2009 in most of the world`s major economies impacted more convincingly on the world demand, supporting local exports and global commodity prices.

Turning to the implications of the data, Nedbank said coupled with weak vehicle sales and consumer credit numbers, manufacturing production showed that demand conditions remained depressed during the second quarter of the year.

This suggested that economic growth probably contracted again during the period.

"However, the Reserve Bank`s Monetary Policy Committee is likely to focus on risks to the inflation outlook and leave interest rates unchanged on Thursday," Nedbank said.

Towards the end of the year, however, the current optimism around the "green shoots" of recovery might have faded, with the initial boost provided by fiscal stimulus packages and the turn in the inventory cycle beginning to dissipate, Nedbank said.

"Policymakers` attention will turn to the prognosis for economic growth for 2010, which is likely to remain weak and well below potential," it added.

The outlook for inflation would probably also have improved by then.

"This should tip the scales in favour of further modest rate cuts before the end of the year, bringing prime down to 10 percent at the bottom of the cycle," Nedbank added.

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