South Africa’s manufacturing output growth slowed to an unadjusted 2% year on year in volume in June from an upwardly revised 7,7% in May, suggesting higher interest rates may be taking effect, data showed on Wednesday.
Compared with May, production fell a seasonally adjusted 3%, Statistics South Africa said on Wednesday.
In the three months to the end of June, manufacturing volumes were unchanged from the previous three months, also on a seasonally adjusted basis.
Analysts said slower manufacturing growth could be a sign that the higher interest rates were slowing the rate of investment for capacity-building.
”This is a slowdown. I think we are beginning to see the impact and the effect of higher interest rates, which is punishing borrowing to expand manufacturing capacity,” said Mandla Maleka, economist at state power utility Eskom.
The central bank meets on August 15/16 to decide on the next direction of interest rates. It raised its repo rate by 50 basis points to 9,5% in June, adding to a 200 basis points from June to December last year.
Manufacturing makes up nearly 17% of the country’s economy, the second-biggest sector after financial services. Growth slowed to 4,7% in the first quarter of 2007 from 8,3% in the fourth quarter of last year.
Slower growth could also be due to the firmer rand currency, which has rebounded from its three-and-a-quarter year low of 7,98 per dollar, reached last year, to trade around 7,03.
”The strength of the rand is beginning to feed negatively on to manufacturing exports,” Maleka said.
Reserve Bank governor Tito Mboweni said on Tuesday manufacturing exports were ”lousy” and trailed those of the mining sector. Mining exports make up 55,5% of total exports while manufacturing exports are 32,3%.
Manufacturing is seen as crucial for creating much-needed jobs for the largely unskilled labour pool and to cut unemployment, which currently stands at 25,5%. — Reuters