Factory output growth puts economy on track

Annual growth in factory output outpaced expectations in March, suggesting the recovery in the supply-side of the economy is on track and backing the case to leave interest rates unchanged.

Statistics SA said yesterday manufacturing output rose by 6,3percent year-on-year in volume terms in March, accelerating from 2,7percent in February, much higher than the 2,9percent expected by economists in a Reuters poll.

On a monthly basis, factory production in volume terms rose by a seasonally adjusted 2,6percent in March and increased by 1,5percent in the first quarter of 2010 compared with the fourth quarter of 2009.

The data comes as the Reserve Bank’s monetary policy committee is deliberating on interest rates, with its decision due to be announced this afternoon.

The bank surprised with a 50 basis point repo rate cut in March to a three-decade low of 6,5percent to support weak local demand that threatens to derail the pace of an economic recovery after last year’s recession.

The rate reduction added to 500 basis points worth of cuts between December 2008 and August 2009.

Twenty-two of the 25 economists polled by Reuters last week expected the Reserve Bank to leave rates unchanged.

Reserve Bank governor Gill Marcus said last month rates were likely to stay stable “for some time” – her clearest signal yet on policy direction before a rates meeting.

Analysts said the manufacturing output figures backed the case for leaving interest rates unchanged.

“The manufacturing data suggest that growth picked up further in the first quarter of this year. We expect no change tomorrow (in interest rate),” said Isaac Matshego, economist at Nedbank.

The manufacturing sector is a key contributor to economic growth and helped the biggest economy in Africa exit its first recession since 1992 in the third quarter of last year.

The rate of economic growth increased to 3,2percent in the fourth quarter, compared with 0,9percent in the third quarter.

Source: Sowetan