Bloomberg News

South African Manufacturing Growth Slumps, Stalling Recovery

December 12, 2011

(Updates with comment from economist in fourth paragraph.)

Dec. 8 (Bloomberg) -- South African manufacturing growth slumped more than economists expected in October to 1 percent, undermining the recovery in Africa’s biggest economy.

Factory output eased from a revised 8.1 percent in September, Pretoria-based Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of 12 economists was for a gain of 5.7 percent. Output fell a seasonally adjusted 3.6 percent in the month.

The worsening debt crisis in Europe, which buys about a third of South Africa’s manufactured goods, has sapped demand for exports. That may persuade the Reserve Bank, led by Governor Gill Marcus, to keep its benchmark interest rate unchanged at a 30-year low of 5.5 percent even as price pressures increase.

“The manufacturing sector is clearly under pressure, and the unfavorable external environment means it will likely stay that way for some time,” Nomvuyo Guma, an economist at Standard Bank Group Ltd. in Johannesburg, said in e-mailed comments. “The slump in manufacturing production growth is negative for the gross domestic product growth outlook.”

The rand weakened to 8.1093 per dollar at 1:49 p.m. in Johannesburg, down from 8.0768 before the release of the manufacturing data and 8.0237 late yesterday. The yield on the R157 government bond, due 2015, rose 1 basis point to 6.7 percent today.

Consumer Spending

Manufacturing, which accounts for about 15 percent of economic output, contracted for a second consecutive quarter in the three months through September, restricting the economy’s expansion to an annualized 1.4 percent.

Consumers are leading the recovery in the economy, benefiting from low interest rates, while production lags. Data published by the central bank today showed rising consumer spending helped to spur imports, while exports lagged, widening the current account deficit to an 18-month high of 3.8 percent of gross domestic product in the third quarter.

“In our view, the Reserve Bank has room to cut rates given the compelling evidence of a struggling economy and an inflation trajectory that, while rising, is expected to return to within target range on a sustained basis in 12 months,” Guma said.

Inflation accelerated to 6 percent in October, the top of teh central bank’s 3 percent to 6 percent target band.

--Editors: Nasreen Seria, Heather Langan

To contact the reporters on this story: Andres R. Martinez in Johannesburg at amartinez28@bloomberg.net; Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net


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