South African Manufacturing Growth Slows to 7.5%; Adds to Rate Cut Call

South African manufacturing growth slowed to an annual 7.5 percent in July, indicating a recovery from last year’s recession may be losing momentum and supporting calls for an interest rate cut tomorrow.

Factory output, which accounts for 15 percent of the economy, gained a revised 9.3 percent in June, Pretoria-based Statistics South Africa said on its website today. The median estimate of 16 economists surveyed by Bloomberg was for a 6 percent gain. Output increased a seasonally adjusted 0.7 percent in the month.

The Reserve Bank has cut its benchmark interest rate seven times to 6.5 percent since December 2008 to help spur consumer spending and will lower the rate by another half point tomorrow, according to 23 of 26 economists surveyed by Bloomberg. Manufacturing growth may come under renewed pressure as growth stalls in Europe, which buys almost a third of South African exports, and the rand holds onto its 28 percent gain against the dollar in 2009.

“We don’t expect booming conditions, given that local demand is still recovering and the strong rand is impacting on exports,” said Salomi Odendaal, an economist at Citadel Investment Services in Cape Town. “The Reserve Bank is under pressure to cut interest rates.”

The rand, which has gained 3.8 percent against the dollar in the three months through August, was trading at 7.2604 against the dollar as of 2:20 p.m. in Johannesburg from 7.2715 before the data was released.

AVI Ltd., South Africa’s second-largest food company, said on Sept. 6 that revenue at its fishing unit, Irvin and Johnson division, will “remain depressed” if the rand’s strength persists.

The Reserve Bank has room to cut interest rates as inflation slowed to an annual 3.7 percent in July, the lowest level in more than four years. The bank aims to keep inflation within a 3 percent to 6 percent target band.

To contact the reporter on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net.

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