FACTORY output contracted less sharply than expected in November, suggesting the economy’s second-biggest sector would continue to recover, boosting overall growth.Manufacturing production shrank 4,7% compared with November 2008, its smallest fall since October that year, data from Statistics SA showed yesterday.

That was better than market forecasts for a contraction of 5,7% year on year, and a big improvement on October’s 9,6% fall.

“Going into the new year we expect manufacturing production to continue to improve with some positive growth likely early this year,” Thebe Securities economist Monale Ratsoma said.

“We remain cautiously optimistic about the sustainability of manufacturing improvement given the fact the demand side of the economy remains subdued.”

During the month, factory output edged up 0,7% in volume terms, the third successive monthly rise, the data showed.

The pick-up was in line with a key industry survey, SA’s purchasing managers’ index, which suggested manufacturing output rose for the first time in 18 months during November.

Manufacturing accounts for about 15% of the economy’s output and was hardest hit by the global and domestic downturn, plunging at a record 25,5% during the first quarter of last year. But in the third quarter it rose 7,6%, pulling SA out of recession.

Analysts now expect economic growth to have quickened in the fourth quarter of last year after a 0,9% rise in the third quarter.

“Today’s numbers are a good start to what we believe will be generally a more positive year for the … economy,” Absa Capital economist Jeffrey Schultz said.

SA lags the global industrial recovery by about three months, and with consumer spending on the back foot, export demand is seen as crucial.

Production of motor vehicles, parts and accessories surged 3,5% in the year to November, after an 11,7% contraction in the embattled industry in October.

Production of food and beverages rose 1,9% year on year after a 0,2% decline in October.

Output from the sector’s other eight major industrial sectors continued to wane, although there were big improvements in the performance of some. Basic iron and steel production fell 0,6% year on year after an 11,6% dive in October, while glass and non metallic mineral products shrank 18,5% after a 7,6% contraction.

Standard Bank economist Danelee van Dyk sounded a note of caution. “Today’s data confirm that the sector is slowly recovering from its 14-month recession.

“The outlook, however, remains clouded by the effect of the strong currency, the endurance of the global economic revival and the health of domestic demand.”

Rising electricity prices, which may rise 35% over each of the next three years, are a challenge for the sector.

So is rand strength , which erodes the global competitiveness of local exports. The unit appreciated 24% against a trade- weighted basket of currencies last year, and has rallied about 4% on that basis so far this year.

Manufacturing output for the three months to end-November leapt 2,9% compared with the three months to end-October.

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