SA’s frag­ile eco­nomic cli­mate high­lighted

The Star Early Edition - - BUSINESS REPORT - Di­neo Faku

SOUTH Africa’s man­u­fac­tur­ing con­tracted by 0.8 per­cent year-on-year in May, beat­ing ex­pec­ta­tions, Statis­tics South Africa (Stats SA) re­ported yes­ter­day.

The agency at­trib­uted the num­bers to the 3.5 per­cent im­prove­ment in the food and bev­er­ages sec­tor which con­trib­uted 0.9 of a per­cent­age point as well as the ba­sic iron and steel, non-fer­rous me­tal prod­ucts which had grown by 5.2 per­cent to con­trib­ute 1 per­cent­age point.

How­ever, the petroleum, chem­i­cal prod­ucts, rub­ber and plas­tic prod­ucts shed 8.4 per­cent and con­trib­uted -2.1 per­cent­age points.

Stats SA also said that sea­son­ally ad­justed man­u­fac­tur­ing pro­duc­tion dropped 0.3 per­cent in May com­pared with April, fol­low­ing the 2.3 per­cent mon­thon-month changes in April and -0.6 per­cent in March.

“Sea­son­ally ad­justed man­u­fac­tur­ing pro­duc­tion in­creased by 0.4 per­cent in the three months ended May, com­pared with the pre­vi­ous three months,” it said.

It said five out of the ten man­u­fac­tur­ing di­vi­sions re­ported pos­i­tive growth rates with the largest con­trib­u­tors be­ing the food and bev­er­ages di­vi­sion which grew by 2.6 per­cent and con­trib­uted 0.7 of a per­cent­age point.

The petroleum, chem­i­cal prod­ucts, rub­ber and plas­tic prod­ucts di­vi­sion dropped by 1.8 per­cent and con­trib­uted -0.4 of a per­cent­age point.

Although May’s man­u­fac­tur­ing data re­mained in neg­a­tive ter­ri­tory, it was bet­ter than the 4.5 per­cent con­trac­tion fore­cast and was also sig­nif­i­cant im­prove­ment from the 4.2 per­cent year-on-year de­con­trac­cline recorded in April, Ned­bank’s eco­nomic unit said.

Fare bet­ter

It said the sec­tor was still ex­pected to fare mod­er­ately bet­ter later this year, with out­put ris­ing off this low base as global growth ac­cel­er­ates mod­er­ately and in­ter­na­tional com­mod­ity prices con­tinue to drift higher.

It also said cur­rent statis­tics had so far sug­gested that eco­nomic ac­tiv­ity in the sec­ond quar­ter re­mained rel­a­tively weak.

“Given the weak econ­omy, de­cel­er­at­ing food in­fla­tion and sub­dued global oil prices, the rand re­mains the key risk to the in­fla­tion out­look.

“We be­lieve there are still con­sid­er­able down­side risks to the rand and there­fore ex­pect that the Mone­tary Pol­icy Com­mit­tee (MPC) will prob­a­bly leave in­ter­est rates un­changed dur­ing this year and to pos­si­bly start cut­ting rates early in 2018,” it said.

James Turp, a port­fo­lio man­ager at Absa As­set Management, said yes­ter­day that although the man­u­fac­tur­ing data was bet­ter than ex­pected, it was still con­tract­ing, adding that the data was an im­por­tant yard­stick for the health of the econ­omy.

“These are not a ter­ri­ble set of num­bers, but high­light the frag­ile eco­nomic cli­mate.

“Go­ing into the MPC meet­ing next week, the re­cent weak growth and con­fi­dence in­di­ca­tors com­bined with the devel­op­ing lower in­fla­tion pro­file mean there is an out­side chance we could see a 25 ba­sis point rate cut,” he said.

The data comes as South Africa is in a tech­ni­cal re­ces­sion af­ter Gross Do­mes­tic Prod­uct de­clined 0.7 per­cent dur­ing the first quar­ter of 2017, fol­low­ing a 0.3 per­cent con­trac­tion in the fourth quar­ter of 2016.

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