Manufacturing fell for an eighth consecutive month in May, Statistics SA said on Thursday.

Production plummeted 17.1 percent from a year earlier after dropping a revised 21.8 percent in April, the Pretoria-based agency said.

According to Statistics SA, May's data was mainly due to lower production in the basic iron and steel, non-ferrous metal products, metal products and machinery division (-24.9 percent), followed by motor vehicles, parts and accessories and other transport equipment (-32.2 percent) and the petroleum, chemical products, rubber and plastic products division (-14.6 percent).

Commenting on the data, Nedbank Group's economic unit said the underlying trend in manufacturing production would remain weak as economic conditions, both locally and globally, remained depressed.

"Production in sectors that supply the local consumer market may even moderate further as consumers are likely to remain cautious as unemployment rises, disposable income falls and household debt levels remain high."

Nedbank added that at the same time, those sectors that depended on fixed investment activity were expected to experience further weakness as fixed investment activity by the private sector was forecast to decline in 2009 and 2010.

This would offset the boost from continued growth in infrastructure spending by general government and public corporations.

Nedbank added that the major export-orientated industries would also continue to take strain as the world economy was forecast to remain weak throughout 2009.

"A significant recovery in the manufacturing sector is expected during the course of 2010 as the local economy recovers due to lower interest rates, more comfortable debt levels and improved confidence, while the massive fiscal stimulus packages announced in 2008 and 2009 in most of the world's major economies begin to impact on the world economy, supporting local exports and global commodity prices," Nedbank said.

Turning to the data's implications, Nedbank added that recessionary conditions would prevail well into the third quarter of the year and that real Gross Domestic Product would contract by around two percent in 2009 as a whole.

"Although the Monetary Policy Committee (of the SA Reserve Bank) left the policy rate unchanged at its June meeting and indicated reluctance to any further easing, we still feel that there is scope for another 100 basis point cut in interest rates before the end of the year," Nedbank said.

This reduction could take the form of two 50 basis point cuts in September and October or a full 100 basis point cut in October, it added.

Prime was therefore expected to end the year at 10 percent.

Sapa