Factories put in worst showing for 10 years

FACTORY output plunged at its fastest pace in a decade in December as demand for exports fell, backing the case for more aggressive interest rate cuts to protect SA from the global recession.

Manufacturing was 7% down on the previous December, its biggest fall since October 1998 and well above consensus forecasts for an annual fall of 3,6%, data from Statistics SA showed yesterday.

In 1998, in at the height of the emerging markets crisis, the rand weakened sharply, pushing interest rates above 25%, while gross domestic product growth shrank to just 0,5%.

The figures show SA’s second-biggest sector is in a deepening recession, and likely to have restrained overall growth in the fourth quarter of last year.

“It looks pretty disappointing," said ETM economist George Glynos. “The numbers suggest we are looking at a downturn far more severe than many private sector economists have picked up. It heightens the probability of another bold move in monetary policy, probably before the next scheduled policy meeting in April."

Reserve Bank Governor Tito Mboweni said last week that if fourth-quarter data on the economy, due at the end of this month, was worse than expected, the monetary policy committee could meet before its scheduled April meeting.

Mboweni had asked for a more aggressive cut in interest rates than the 100 basis points decided on at last week’s meeting, but other committee members opted for a more conservative stance.

The Bank cut the repo rate from 11,5% to 10,5%.

The decline in November was revised to 6,4% from 4,4% previously. Output fell 4% in the month itself, seasonally adjusted data from Stats SA showed.

The manufacturing sector accounts for 16% of gross domestic product and 14% of formal employment.

Nedbank chief economist Dennis Dykes said: “I think what we are starting to see now is the dual effect of the slowdown domestically and on top of that the delayed effects of what has happened internationally coming through.”

Dykes said industries such as motor manufacturing had been hit by a double whammy, with local and export demand slowing dramatically.

Industries such as iron and steel were also hit severely. It was increasingly likely that the economy shrank in the fourth quarter.

“The retail sector is under pressure. Mining will be down. Even prior to this number we were predicting a small decline in GDP in the fourth quarter and now it looks a certainty,” he said.

Standard Bank local markets analyst Atusaye Mughogho said manufacturing sectors globally were similarly hard hit by the continuing financial crisis.

“In addition to slowing growth, domestic manufacturing has been hampered by the lethal combination of high input costs and interest rates,” Mughogho said.

Falling commodity prices, in line with global recessionary pressures, saw basic iron and steel, nonferrous metal products, metal products and machinery fell 21% year on year in December from an 11,3% decline in November.

Interest rate-sensitive sectors also performed poorly, he said, with motor vehicles, parts and accessories and other transport equipment falling 33,1% from November’s 21,9% drop. Mughogho said this vindicated January’s dismal vehicle sales data and the vehicle industry’s call for government aid.

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