Slide of factory output revives rate cut hopes

SOUTH Africa's manufacturing output shrank by a worse-than-expected 15percent year-on-year in August, showing the sector remains deep in trouble and reviving expectations interest rates may be cut again this year.

SOUTH Africa's manufacturing output shrank by a worse-than-expected 15percent year-on-year in August, showing the sector remains deep in trouble and reviving expectations interest rates may be cut again this year.

Statistics South Africa said yesterday year-on-year factory output fell for the 11th consecutive month, after a 13,5percent contraction in July.

Production also declined compared to July, sliding 2,8percent and confounding expectations of growth.

There was some light at the end of the tunnel, though, with the output number for the three months to August showing 0,8percent growth compared to the previous three months.

Analysts said the data showed the sector had continued to struggle, depressed by weak local demand and with exports under pressure from a relatively strong rand currency.

Some economists suggested the data could open the way for another cut in interest rates.

"The number is worse than expectations. But we have to remember this is a volatile number and the rate of decline is weakening from around 21percent in April," Nedbank economist Johannes Khosa said.

The central bank has cut the repo rate by 5 percentage points since December to try to help revive the economy, but kept it steady at 7,0percent at its September policy meeting, given inflation remains above the 3 to 6percent target range.

Its next rates meeting is on October 22.

Central bank governor Tito Mboweni has repeatedly warned that the strength of the rand - it has rallied more than 20percent against major currencies this year - may be harming sections of the economy.

The randwas at 7,3565 to the greenback yesterday, flirting with a 14-month high, largely due to a weak dollar and a record price for gold. - Reuters

X