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Private sector contracts, consumer confidence dips

Johannesburg - South Africa's private sector slipped back into contraction in June after expanding for the first time in a year in May, as output fell and companies cut jobs, a survey showed on Tuesday.

The data, released minutes after another report pointed to waning consumer confidence, is the latest sign of sluggish growth in Africa's most industrialised country, which has recently dodged credit rating downgrades but analysts fear could still slip into "junk" status by year end.

READ: SA consumer confidence wanes as economy is hammered

The rand fell as much as 1.6% against the dollar on the poor data, while bonds also weakened.

The Standard Bank Purchasing Managers' Index (PMI), compiled by Markit, fell to 49.6 in June from 50.2 in May, falling below the 50 mark that separates growth from contraction.

"One of the main drags on the headline PMI in June came from an accelerated decline in output, which companies attributed to slow market conditions," Markit said in a statement.

"In response to falling activity and declining backlogs of work, some firms lowered their workforce numbers marginally."

Companies have cited an unstable macroeconomic environment as a major hindrance to business, with economic growth estimated by the central bank at 0.6% this year.

This has hamstrung efforts to slash unemployment, currently hovering close to 27% of the labour force, while employment in the formal sector fell by 0.2% to 9.273 million people in the first quarter of the year.

READ: SA shed 15 000 jobs in first three months of 2016 - Stats SA

The unfavourable jobs climate, coupled with rising interest rates, has hurt household finances. A survey on Tuesday showed consumer confidence slipped further into negative territory in the second quarter of the year.

The quarterly confidence index sponsored by the First National Bank (FNB) and compiled by the Bureau for Economic Research, slumped to -11 in the second quarter after registering -9 in the first three months of the year.

"In light of the slump in economic activity and decline in employment levels, it is not surprising that consumers made a further downward adjustment to their ratings of the outlook for the South Africa economy," FNB said in a statement.

The slew of weak economic data could inhibit the central bank from raising interest rates at its next meeting next month, as it grapples with price pressures caused by a severe drought and a weaker rand.


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