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Manufacturing output up slightly

Johannesburg - South Africa’s manufacturing output grew 0.8% year-on-year in volume terms in June, undershooting market expectations after a revised 4.4% rise in May.

The consensus of economists in a Reuters poll was for factory output to grow by 3.2% in June.

Statistics South Africa said on a month-on-month basis production fell by a seasonally adjusted 2.4% and by 0.2% in the three months to June compared with the previous three months.

Said Anisha Arora, emerging market analyst: “There are plenty of negative signals in the manufacturing print.    

“Overall, the figure come in line with the sharp fall in the Kagiso PMI in June, but the index since rebounded in July to 51, suggesting the sector is hovering on the borderline between contraction and expansion.

“In our opinion, the path is set out for contraction in industry, especially as major central bank’s have signalled easing measures on the horizon, and will consequently reduce external demand.”

Johannes Khosa, economist at Nedbank said: “It’s a very disappointing number and it doesn’t bode well for the economic growth number for the second quarter.”

Market reaction

The rand was slightly firmer at R8.1950 against the dollar at 11:18 GMT from R8.204 before the data was released at 11:00 GMT, following positive global risk sentiment.

The yield on the 3-year bond was steady at 5.585%, with that for the 14-year bond was also unmoved at 7.365% from 7.365%.

Background

The manufacturing sector contributes about 15% of gross domestic product and is key for creating employment in South Africa, where the official jobless rate stands at about a quarter of the labour force.

Output increased by 2.5% in 2011, only half of the expansion seen in 2010, Statistics South Africa data shows.  

South Africa plans to spend R5.8bn over the next three years to help manufacturers affected by the global economic downturn upgrade their factories, improve products and train workers.  

The Purchasing Managers' Index, a key leading indicator of manufacturing activity, fell into contraction territory at 48.2 in June.

Figures released on Tuesday showed an improvement to 51 in July but the outlook of managers is weak, signalling soft economic growth in the second quarter.

 
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