South Africa’s manufacturing output increased by 7,5% year-on-year in July, with analysts saying that the recovery in the manufacturing sector seemed to be firmly entrenched, but growth was moderating.

The July manufacturing figure is lower than the previous month’s revised output growth of 9,3%, but it was still marginally higher than market expectations, said Absa Capital macrostrategist Jeff Schultz.

Schultz commented that the moderation in manufacturing output in July was largely owing to the base effects that have been dissipating over the past two months or so.

Kgotso Radira, an economist at Investec, agreed that the boost from 2009’s base effects were starting to wane, indicating that a slowdown in output growth could be expected, going forward.

She added that, similar to previous months, growth was not broad-based across all subsectors, with production having increased in only seven of the ten subsectors.

The declines in output were mostly in the consumer-related industries, showing that household spending remains weak without immediate signs of recovery, said Radira.

Statistics South Africa’s data had shown that July’s manufacturing production growth was led by the motor vehicles, parts and accessories and other transport equipment division, which saw a 24,5% increase in output; and the petroleum, chemical products, rubber and plastic products division, which had increased production by 11,6% year-on-year.

The wood and wood products, paper, publishing and printing division had increased production by 14,3% year-on-year in July and the basic iron and steel, nonferrous metal products, metal products and machinery division increased output by 6,5% year-on-year.

However, Schultz pointed out that the momentum growth in manufacturing production had, on a quarter-on-quarter seasonally adjusted and annualised basis, shown a marginal improvement on that of the June statistics, which indicated that the growth in momentum seemed to be stabilising.

Seasonally adjusted manufacturing production for the three months ended July 2010 increased by 1,5% compared with the previous three months ended April 2010.

Radira, meanwhile, said that manufacturing growth in the second half of the year would likely be lower than in the first half of the year, with the industrial action by various sectors in South Africa expected to exacerbate the slowdown.

Both Schultz and Radira expected the South African Reserve Bank (SARB) to cut interest rates by a further 50 basis points, when the monetary policy committee meets on Thursday.

The rate cut would be support by improved inflation data and other weak economic data, said Radira.

Schultz added that the fact that the global economic recovery remained fragile and an improved medium to longer-term inflation trajectory would allow the SARB to ease rates one more time.