Manufacturing production surged 6,8% year on year in August, its strongest growth in 23 months boosted by strong domestic demand and a pick-up in exports.

Stronger growth in manufacturing production bodes well for overall economic growth and job creation because manufacturing contributes about 18% to gross domestic product (GDP) and is one of the largest employers in the economy.

The manufacturing sector slumped into recession last year, after the strong rand reduced the competitiveness of exports and sluggish global growth adversely affected export demand.

However, stronger production growth this year, on the back of robust domestic spending, has helped to pull the sector out of its doldrums.

Figures from Statistics SA (Stats SA) yesterday showed that August's growth in production topped July's year-on-year growth rate of 5,2%, while in the first eight months of the year, production was 3,3% higher than in the same period last year.

All of the 10 manufacturing industries showed stronger growth in August compared to a year ago, but the fastest growth was in sectors such as glass and nonmetallic mineral products; food and beverages; motor vehicles; and petroleum and chemical products.

Efficient Group economist Nico Kelder said yesterday that the boost in manufacturing in August would help economic growth record an even faster growth rate in the third quarter.

GDP grew at an annualised rate of 3,9% in the second quarter, compared with the previous quarter. Government forecasts that economic growth would rise 2,9% this year, up from last year's slow pace of 1,9%.

"The stronger expansion in manufacturing combined with strong consumer demand could catapult the South African economic growth rates to more respectable levels," said Kelder.

However, there were worrying signs in Stats SA's figures that all was not well in the manufacturing sector.

Production, on a seasonally adjusted basis, actually dropped 0,8% month on month in August, compared with July's growth rate of 1,8%.

Vector Securities' chief economist Johan Rossouw said that while this drop might be countered by August's cut in interest rates, it was worrying that manufacturing production volumes and sales showed a trend deceleration when measured on a quarterly, seasonally adjusted and annualised basis.

"This suggests the risk of a more fundamental slowdown in manufacturing over the next few quarters cannot be ruled out.

"Hopefully, the favourable demand effect of the surprise interest rate cut in August assisted in preventing further manufacturing production volume deceleration in ensuing months," Rossouw said.