A slight improvement in South Africa's manufacturing reading is not about to shoot the economic lights out and a slow, volatile path to recovery awaits.

However, it does point to a potential turning point out of the recessionary mire.

"Today's data confirm that the rate of decline in the manufacturing sector is slowing.

"While the sector is clearly benefiting from the recovery in global industrial production, output may only start posting positive growth early next year.

Rand strength, electricity prices and conservative household demand will be the chief factors limiting the sector's advance next year," says economist from Standard Bank, Danelee van Dyk.

She says today's manufacturing release and last week's electricity consumption data support an outlook for an annualised increase in GDP of 1.9 percent quarter-on-quarter in Q3.

This comes as it was reported on Tuesday that the physical volume of manufacturing in South Africa in September was at an improved 11.4 percent year-on-year (y/y) from a revised 15.2 percent (-15.0 percent) in August.

"Overall, given recent signs of improvement in the local PMI readings, we expect manufacturing activity levels to continue to recover in the coming three to six months, although the path to that recovery is likely to be fairly volatile," said chief economist from Stanlib, Kevin Lings.

Freddie Mitchell, an economist at Efficient Group, however, feels that the manufacturing figures confirm the notion that economic activity is still declining.

Positive economic signs from our major trading partners over the medium term (Europe and Asia) may help in further slowing down the pace of contraction within the economy as demand for South African produced goods increases internationally.

"These positive developments within our trading partners may only help the South African economy if they continue throughout the fourth quarter of 2009 and beyond and consequently boost the South African exports and especially manufacturing exports," says Mitchell.

Kgotso Radira, an economist at Investec, says that this year has been the most challenging for the sector due to a sharp fall in demand, exacerbated by rand strength.

"We expect conditions to slowly improve in early 2010, but remain below historical trends.

"Despite a poor inflation outlook, weak growth next year could result in the SARB leaving interest rates low for some time to stimulate domestic demand.

"We do not expect any more interest rate cuts."

Wednesday''s data showed that seasonally adjusted physical volume was up 3.1 percent between August and September this year and up 2.6 percent in the third quarter relative to the second quarter.

This will be an important figure for the quarterly seasonally adjusted GDP reading due on 24 November.

Changes to the GDP's base year and benchmarking will ensue, with the non-observed economy now in the mix.

The seasonally adjusted reading was better than the 0.8 percent quarter-on-quarter increase in August 2009 as higher production levels were reported by six of the ten manufacturing divisions during the third quarter of 2009.

Manufacturing is a receding sector in South Africa and unfortunately, this is the sector most needed to drive the emergent growth story.

Like China before it, South Africa needs to manufacture more goods in quicker time to have any hopes of breaking its unemployment shackles for a respectable period of time.