SA manufacturing output shrinks 17,1%

South Africa’s manufacturing output fell sharply again in June compared to a year ago, pointing to more pressure on the economy’s second biggest sector.

Statistics South Africa said on Tuesday output contracted 17,1% year-on-year in June, marginally less than the revised 17,2% fall in May.

Production ticked up on a monthly basis, the second consecutive monthly growth, suggesting some light down the road for the ailing sector, but the increase was less than in May, dampening hopes of a quick upturn.

Production rose by a seasonally adjusted 0,1% in June from May.

Manufacturing, a key employer, has been hit hard by a global downturn and weak local demand, helping push the country into its first recession in nearly two decades.

Statistics SA said factory output was down 3,0% in the second quarter compared to the previous three months.

Africa’s biggest economy is expected to contract again in the second quarter, in data due for release next week, driven by a manufacturing and mining slump.

“The headline number is a bit worse than we expected, essentially showing that the manufacturing sector is certainly not out of the woods yet,” Absa Capital macro strategist Jeffrey Schultz said.

“There’s still a lot of pressure in the manufacturing sector and that’s likely to reflect in next week’s GDP number release. Certainly not a good number at all.”

Some analysts said the data added weight to arguments for another interest rate cut this year, although there were signs that the decline was bottoming out.

The central bank’s monetary policy committee starts a two-day meeting on Wednesday to decide on rates with a Reuters poll showing it will likely keep the repo rate unchanged at 7,5%.

The bank had cut rates by 450 basis points since December but paused in June on worries about sticky inflation.

The targeted consumer inflation gauge, however, eased sharply to 6,9% in June, raising speculation there was still room for more policy loosening this year, particularly on signs the economy may not recover as quickly as previously expected.

“We still believe the MPC will cut interest rates by 50 basis points on Thursday, mainly on the basis of the improved inflation outlook, continued contraction in economic activity and job loses,” Investec economist Kgotso Radira said.

The rand and government bonds were little moved after the manufacturing data was released.—Reuters

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