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Factory output slows down

Johannesburg - South Africa's manufacturing output fell by a more than expected 6.0% year-on-year (y/y) in volume terms in July, compared with a revised 0.8% increase in June, Statistics South Africa said on Thursday.

Economists in a Reuters poll saw a contraction of 0.6% y/y in July's factory output.

Compared to June, production in volume terms also contracted by a seasonally adjusted 6.0% in July. It was down 3.5% in the three months to July, compared with the previous three months.

Peter Attard Montalto, emerging market analyst at Nomura, said: "A total shocker of a number. Part of this may have been on strike action and part on lower export growth.

"But even then it looks very, very weak on the domestic front too. This increases the chances of cuts though I still think if they do come, Q1 next year is more likely than either September or November this year."

The rand was trading at R7.1605 against the dollar at 11:13 GMT, from R7.1501 before the release of the data at 11:00 GMT.

The 2015 yield was at 6.375% from 6.385% prior, and that on the 2026 note was at 7.80% from 7.81%. 

The manufacturing sector contributes 16% of gross domestic product, and its weakness in the sector does not augur well for gross domestic product (GDP) growth.

Manufacturing contracted by 7.0% in the second quarter, contributing to a sharp slowdon in GDP growth to 1.3% from 4.5% in the first quarter.

Some of the weakness in the sector has been attributed to the resilience of the rand, which has gained over 25% against the dollar since the beginning of 2009 and is largely expected to keep those gains.

The purchasing managers' index - a key indicator of manufacturing activity before the official data - was in contraction mode in July and August, pointing to continuing struggles in the sector. 

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