Key industries still struggling

Johannesburg - Economic data highlight the continued weakness in South Africa's key production sectors and suggest that difficult times await Africa's largest economy, according to economists at London-based Moody's.com.

However, the "massive" state spending on infrastructure, particularly in the run-up to the 2010 Fifa World Cup, will assist the construction and civil engineering sectors this year, said Moody's economists Ruth Stroppiana and Melanie Bowler.

For instance, construction giant Wilson Bayly Holmes-Ovcon, which is involved with the construction of three soccer stadia and two airports, reported a 35% increase in revenue to R6.8bn, a 75% rise in operating profit to R484m and an 85% increase in profit for the period to end-December.

But manufacturing, which accounts for about 15% of gross domestic product (GDP), contracted for the ninth straight month in April, by 2.5% month-on-month (m/m) and 21.6% year-on-year (y/y).

"The slowdown in residential construction, amid falling property prices, is also weighing on production. According to data from the country's largest mortgage lender, Absa, house prices in May recorded their largest monthly fall in over 20 years, slipping 0.5% m/m to come in 3.7% lower y/y," they said.

Mining - which accounts for about 5% of GDP and is an important contributor to fixed investment spending - rebounded 5.6% m/m in April but is lingering below its year levels at - 10.6% weaker.

Gold production, which employs about a third of all mineworkers, remained a key drag on overall mining, plummeting 12.3% m/m and 13% in annual terms.

Unemployment on the rise

Most key production sectors are slashing employment, with over 60 000 manufacturing employees and a similar number of construction workers losing their jobs during the first quarter of 2009.

"Leading job market indicators point to further job losses in coming months. The latest Manpower survey of hiring expectations revealed that, while 17% of employers expect to increase staffing levels in the third quarter, 15% expect to cut their workforces; the remainder expect no change," said the economists.

Business expectations remain downbeat. The SA Chamber of Business' trade expectations index fell to 46 in May from 48 a month earlier on a bleaker outlook and low numbers of new orders.

"Industry is likely to remain in the doldrums until a sustained pickup in confidence, new orders and, importantly, commodity prices, including precious metals prices, take hold. Meanwhile, residential construction is unlikely to recover until property prices stabilise," said Stroppiana and Bowler.

- Fin24.com