South Africa’s July manufacturing output up 2.9 percent as business confidence slips in Q3

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JOHANNESBURG – South Africa’s industrial output expanded in July as food and motor vehicle output rose, easing pressure on an economy that recently slipped into recession and is struggling for investment amidst policy uncertainty and possible credit downgrades.
A worker inspects beer bottles on a conveyor belt at the Sedibeng Brewery in Midvaal outside Johannesburg, South Africa, September 15, 2016. REUTERS/Siphiwe Sibeko

The statistics agency in Africa’s most industrialised economy said on Tuesday manufacturing output rose by 2.9 percent year-on-year in July, following a revised 0.6 percent expansion in June.

Analysts polled by Reuters had expected a 1.1 percent year-year-on-year increase in July.

The rand responded positively to the data, strengthening to 15.0850 from 15.1200 before the release.

Analysts said manufacturing, which contributes 13 percent of gross domestic product and 11 percent of employment, is set to rebound for the rest of 2018 as inventories are replenished.

“This could be early signs of stabilisation in the sector, but we cannot rule out shocks especially as trade conditions are affected by the U.S.-China trade war,” said Isaac Matshego, senior economist at Nedbank.

The country slumped to a surprise recession, data showed last week, as manufacturing along with agriculture and retail shrank. Finance Minister Nhlanhla Nene on Monday said revenue collection could fall below target due to the recession.

Meanwhile South African business confidence fell marginally in the third quarter, a survey showed on Tuesday, after the economy slipped into recession and hopes faded for a revival under President Cyril Ramaphosa.

The Rand Merchant Bank (RMB) business confidence index compiled by the Bureau for Economic Research fell to 38 points in the third quarter from 39 points in the second, dropping further below the 50-mark that separates net positive and negative readings.

“The underlying South African business landscape continues to weaken, with more sectors showing signs of strain,” said RMB’s chief economist Ettienne Le Roux. “While confidence hasn’t (yet) fallen to the levels observed during the previous (and severe) recession of 2009, we remain deeply concerned about the prospects.”

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The index also lost 6 points in the second quarter.

Business confidence raced to a 2-1/2 year high in January after Ramaphosa’s election as leader of the ruling African National Congress in December. The private sector anticipated business-friendly policies under Ramaphosa, who became president in February, following years of uncertainty under his predecessor Jacob Zuma.

This enthusiasm has since waned as South Africa entered recession in the second quarter for the first time since 2009. Data earlier this month showed the economy contracted 0.7 percent quarter-on-quarter, led by declines in the agricultural, transport and retail sectors.

The South African Chamber of Commerce and Industry reported its monthly business confidence index rose to 94.7 in July from 93.7 in June, with activity mainly supported by an increase in merchandise export volumes and retail sales as well as lower inflation, a survey showed in August.

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