Manufacturing output contracts on rates

South Africa’s manufacturing output shrunk by 1,1% year-on-year in March from an upwardly revised 3,9% expansion in February, official data showed on Thursday, partly weighed down by higher interest rates.

Compared with February, manufacturing production in volume terms contracted by a seasonally adjusted 4% in March, Statistics South Africa said.

In the three months to the end of March, manufacturing volumes growth was negative 0,5% compared to the previous three months, also on a seasonally adjusted basis.

“It’s clear that the manufacturing sector is struggling at the moment and that has to do with lower demand locally,” said Citadel economist Salomi Odendaal.

“One can also see it from the PMI ... that activity in the sector is barely positive. That is also in line with consumer demand that has slowed down.
A lot of it is [a result of] higher interest rates. They take time to filter through and they are obviously having an impact.”

The central bank has hiked interest rates by a total of 450 basis points since June 2006 in a bid to tame runaway inflation which has clung above the top end of a 3% to 6% target range for 12 months.

The rand weakened slightly to 7,6050 against the dollar immediately after the data was released at 11am.

Manufacturing accounts for more than 16% of the country’s gross domestic product, and ranks as the second-biggest sector after financial services.

The sector grew by an annualised 8,2% in the fourth quarter of 2007 after shrinking by 2,5% in the third quarter.

South Africa’s Purchasing Managers Index (PMI), a key measure of manufacturing activity, recovered to 54.1 in April after hitting a near-five-year low of 43,7 in March. - Reuters

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