South African Manufacturing Growth Almost Grinds to a Halt

South African manufacturing growth unexpectedly eased to its slowest pace in four months, increasing the chances that the central bank will keep interest rates at a 30-year low.

Growth in factory output, which accounts for 15 percent of the economy, slipped to 0.4 percent in April from a revised 4.9 percent the month before, Pretoria-based Statistics South Africa said on its website today. The median estimate of 16 economists surveyed by Bloomberg was 5 percent. Output fell a seasonally adjusted 3.7 percent in the month.

“These numbers really warrant for the current accommodative monetary policy framework to be maintained for a while longer,” Shireen Darmalingam, an economist with Standard Bank Group Ltd., said by phone from Johannesburg. “We expect the Reserve Bank to keep rates unchanged until next year.”

The Reserve Bank cut its benchmark interest rate three times to 5.5 percent last year to help support the recovery in Africa’s largest economy. While manufacturing surged an annualized 14.5 percent in the first quarter, weaker growth in vehicle sales and a slip in the purchasing managers’ index indicate growth may ease.

The jump in manufacturing spurred a 4.8 percent gain in gross domestic product in the first quarter.

Bad Omen

Today’s figures don’t “bode well for growth,” Darmalingam said. “We could see a sharp moderation of that stellar growth we had.”

Manufacturing may also suffer as higher fuel, food and electricity costs cut into consumer spending and global demand slows, said Chris Gilmour, an analyst with Absa Investments, a unit of Absa Group Ltd.

“I suspect that manufacturing will take a bit of a beating in the second half,” Gilmour said by phone from Johannesburg before the release of the data. “With so much uncertainty ahead of us, a higher interest-rate environment might be pretty negative.” The Reserve Bank is unlikely to raise rates until the first quarter of next year, he said.

South Africa’s purchasing managers’ index declined for a third consecutive month in May, Kagiso Securities Ltd. said on June 1, indicating the recovery in manufacturing output may come under pressure as job losses mount. The sub-index measuring factory inventories slipped the most, declining to 54.5 in May from 61.5 the previous month.

Vehicle sales in South Africa rose at the slowest pace in 17 months in May, the National Association of Automobile Manufacturers of South Africa said on June 2.

The high number and timing of South Africa’s public holidays in April contributed to moderate vehicle sales growth, Naamsa said on May 4.

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