S.Africa's December manufacturing output disappoints

Growth in South Africa's manufacturing output slowed to just 0.2 percent on the year in December and was far below analysts forecasts, showing the vital sector still struggling to recover from a recession in 2009.

A Reuters poll on Monday had predicted a year-on-year increase of 4.1 percent compared to 4.6 percent in November.

The number is likely to weigh on economic growth estimates for the fourth quarter of 2010, but analysts said on its own it was unlikely to shift expectations that interest rates would stay on hold for the next couple of months.

It's a bit of a shock. Certainly we had seen that the PMI (Purchasing Managers Index) number did weaken a little bit in December but it was still above 50, said Stanlib economist Kevin Lings.

This would suggest that manufacturing was a lot weaker and that weakness seems to have been, unfortunately, fairly broad-based. Obviously it will hurt the GDP estimate for the fourth quarter.

The rand extended losses against the dollar to 7.2870 after the data. The yield on the 2015 bond dipped to 7.84 percent from 7.85 percent beforehand.

Compared with November, factory production in volume terms fell by a seasonally adjusted 0.2 percent in December. Output grew by 1.1 percent in the three months to December compared with the previous three months, also on a seasonally adjusted basis.

South Africa's factory production contributes about 16 percent to gross domestic product and it had been recovering steadily since a contraction in 2009 that helped push the country into its first recession in nearly two decades.

The Reserve Bank slashed interest rates by a cumulative 650 basis points between 2008 and 2010 to help lift the economy, but left them unchanged in January, signalling an end to the monetary loosening cycle on signs growth was on track.