Base effects help manufacturing rebound in July

"The outlook for the rest of the year remains relatively bleak. Recession in Europe‚ a subdued US economy and slower growth in China and other major emerging markets will weigh on the sector‚ undermining production‚ inventories and capital expenditure by the major export-orientated industries‚" Busisiwe Radebe‚ economist at Nedbank said.

On a monthly basis‚ the seasonally adjusted manufacturing production declined by 1.1%.

Stats SA also reported that it had published the results for the monthly survey of manufacturing production and sales from a new sample drawn in April‚ which replaced the previous sample that was drawn in April 2011.

The sample was drawn from a business register of enterprises with an annual turnover of at least R1‚241‚812 and that were required to register with the South African Revenue Service (SARS) for value added tax.

Eight of the ten manufacturing divisions were responsible for the 5.8% rise in July. These included higher production in the petroleum‚ chemical products‚ rubber and plastic products sector‚ with a 6.9% rise and a 1.7 percentage point contribution; basic iron and steel‚ nonferrous metal products‚ metal products and machinery‚ with a 9.0% increase and a 1.7 percentage point contribution; and the food and beverages division‚ with a 7.4% increase and a 1.3 percentage point contribution.

Despite the July improvement‚ economists expected manufacturing to continue under pressure in the second half of the year as subdued global demand continued to take its toll on major exporting countries like SA.

The leading indicator of activity in the sector‚ the Kagiso Purchasing Managers Index (PMI)‚ also supports views of a strained manufacturing sector‚ which is the second biggest sector of the economy.

The PMI declined by 0.8 points to 50.2 in August.

Manufacturing production has also failed to impress regarding its contribution to domestic growth in the second quarter.

It contracted marginally in the second quarter‚ after being the main contributor to growth in the first quarter.

Investec Group economist Annabel Bishop said that economic growth was likely to remain well below its potential this year‚ as indicated by the poor levels of manufacturing activity‚ although the Reserve Bank's inflation expectations for this year and next year might not remain below 6% year on year on the back of rising food prices.

"However‚ weakening growth is supportive of a 50bp cut at the September MPC [Monetary Policy Committee] meeting‚ particularly if QE3 is announced in the US‚ as this will likely cause persistent rand strength for a few quarters and so lower Reserve Bank inflation forecasts again‚" Bishop said.