Share

Rate cut expectations rise

Johannesburg - South Africa's manufacturing output was weaker than expected in April as export demand remained sluggish, adding to signs that economic recovery is hesitant and supporting the case for an interest rate cut later this year.

Other data released on Thursday indicated Africa's biggest economy is headed for prolonged strain as production and demand for its minerals remains tepid, its trade partners are buying fewer of its manufactured goods and local businesses see the outlook as being the bleakest in about a decade.

"If anyone had any doubt that the risk of a new slowdown in the South African economy is now non-negligible, this manufacturing data will reinforce that," said Razia Khan, head of Africa research at Standard Chartered bank.

"The euro area is of course the key export destination for South African manufactured goods, so it is difficult to be very surprised by developments.

"Clearly external weakness and its impact on the South African economy will continue to be a concern to policymakers."

A raft of weak domestic data and signs of a sharp downturn in major markets including the eurozone have seen economists push back their expectations for the resumption of monetary tightening in South Africa by about a year to late 2013, a Reuters survey showed.

At the start of the year, analysts expected rates to start rising as early as the fourth quarter of 2012. Now some say the central bank may actually cut rates, perhaps as early as September.

Statistics South Africa data showed factory output, which accounts for about 15% of gross domestic product, grew by 1.2% year-on-year (y/y) in volume terms in April - below forecasts of 1.9% - after contracting by 2.9% in March.

Government bonds edged up after the factory data, with the yield on the 2015 bond dipping to 6.235% from 6.245% before, while that for the 14-year bond fell to 8.25% from 8.265%, suggesting the market is pricing in lower rates.

The Reserve Bank, which has kept rates at three-decade lows since late 2010, left its main rate unchanged at 5.5% at its last policy meeting in May but sounded a dovish tone about the effects of a bleak global outlook, revising its domestic growth forecast down slightly.

The bank now sees economic expansion of 2.9% in 2012 compared to previous expectations of 3.0%. This still compares favourably with the National Treasury's prediction of 2.7% growth this year.

Mining drags down growth

Growth started sluggishly this year, dragged down mainly by a 16.8% contraction in the mining sector.

Weakness in the sector continued into the second quarter, with total mineral production falling 10.6% in volume terms in April compared with the same month last year.

Gold output alone fell by 12.8% while platinum production, for which South Africa is the biggest producer in the world, contracted 28% y/y.

"The outlook for the mining sector remains bleak in the short term," said Nedbank in an economic note.

"With recent indicators suggesting loss of momentum in global growth, eurozone problems persisting, certain commodity prices easing and the operating environment remaining difficult, the performance of the mining sector will remain weak."

In a sign of growing worries, a local business confidence index plunged to a 10-year low in May, extending this year's downward spiral, data showed on Thursday.
We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.97
-0.4%
Rand - Pound
23.98
-0.3%
Rand - Euro
20.51
-0.2%
Rand - Aus dollar
12.36
-0.1%
Rand - Yen
0.13
-0.4%
Platinum
906.75
+1.1%
Palladium
1,015.63
+1.4%
Gold
2,206.97
+0.6%
Silver
24.60
-0.2%
Brent Crude
86.09
-0.2%
Top 40
68,261
+0.9%
All Share
74,453
+0.7%
Resource 10
56,939
+2.3%
Industrial 25
103,989
+0.7%
Financial 15
16,492
-0.2%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders