The Investec purchasing managers' index (PMI), a reliable health gauge for the economy's second-biggest sector, fell to 36 from 39.2 in February.
“The slump in global manufacturing over the past few months was again reflected in our numbers in March,” said Mokgatla Madisha, a portfolio manager at Investec Asset Management.
“While the data may be more mixed this month, with some hints of improvement, the overall level is poor and reflective of a severe depression in the sector.”
The rand strengthened 1.4% to R9.36/ on yesterday's news, which boosted hopes of more aggressive interest rate cuts to support the flagging economy. It later retreated to R9.40/.
Factory output fell a record 22% in the final quarter of last year, prompting the economy to shrink 1.8%, its first decline in a decade.
Manufacturing has been hit hard by the global downturn, with a severe recession in most of SA's main trading partners eroding demand for local exports.
Analysts believe the sector's woes led to another fall in output during the first quarter of this year, which would technically put SA into a recession.
The Bureau for Economic Research (BER), which conducts the PMI survey, is revising down its forecasts for the economy this year after predicting a contraction of 0.5% last month.
“At this stage it seems like we will be going lower with our forecast for this year for a fall of between 0.5% and 0.7%,” BER economist Christelle Grobler said.
All five of SA's biggest banks are predicting the economy will shrink this year, for the first time since 1992. Goldman Sachs economist Ashok Bhundia has one of the bleakest forecasts, predicting output will fall 1.6% this year after expanding 3.1% last year.
“There have been clear indications in recent data that weak manufacturing output and business confidence are having a strong negative impact on private sector fixed investment,” he said.
That means the government's huge infrastructure spending programme is unlikely to be enough to compensate for the slowdown in consumer spending, the main growth engine for the economy.
Grobler said the main reason the BER saw a sharper fall in output this year was mounting pressure on local exports, which might fall 8.4% this year. This tracks global trends; the Organisation for Economic Co-operation and Development sees world trade receding by an alarming 13.2% this year.
But similar factory surveys for Europe and the US yesterday showed an easing of the pace of decline in output.
The euro zone PMI index rose to 33.9 last month from 33.5 in February while Britain's PMI bounced to 39.1 from 34.9.
In the US, the Institute for Supply Management's factory index rose to 36.3 last month from 35.8 in February.
Readings of less than 50 signal a contraction in output, and in SA's case the PMI has been below 50 for 11 months running.
The survey measures sales orders and expectations among buyers of supplies for factories.
A breakdown of the local PMI showed that business activity dived to 31.2 from 34, while suppliers' performance dived to 45.7 from 55.3. The employment index receded to 39.2 from 40.8.
That suggests there will be more retrenchments in the sector, which already shed 20,000 jobs in the fourth quarter of last year, according to official data.
The survey showed that expected business conditions for the next six months crept up to 46.6 from 38.3 in February.
“With some forward-looking indicators having improved over the month, there is a sense that the downturn we have witnessed from the second half of 2008 will start to bottom out in the second half of this year,” Madisha said.
“However, we still face severe headwinds from plummeting consumer confidence and rising output gaps globally.”
Source: Business Day
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