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South Africa Manufacturing Gains 2.5% as Strike Effect Wanes

South African manufacturing output rebounded in October as a series of mining and transportation strikes tailed off.

Factory output rose 2.5 percent, compared with a revised contraction of 1.7 percent in September, Pretoria-based Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of 13 economists was for growth of 0.3 percent. Output rose 1.2 percent in the month.

Pay strikes that began in platinum mines in August spread to gold, coal and iron-ore operations, with about 120,000 workers downing tools at the peak of the unrest, according to the Chamber of Mines, an industry body. Labor action also disrupted output in the transportation and agricultural industries. The effect of the strikes on production began to wane in October, as pay settlements were reached.

While output is reverting to normal levels, producers are still struggling to find alternate markets for their goods following a decline in demand from Europe, which buys about a third of the country’s manufactured exports. The 17-nation euro-area economy will probably shrink 0.3 percent next year, the European Central Bank said on Dec. 6.

“The data is better than expected, but I don’t think the improvement is sustainable,” Colen Garrow, chief economist at Johannesburg-based Meganomics, said in a phone interview today. Manufacturing is “going to remain on the weak side. We are not getting enough of products out to the export market. A large part of our destination markets are in recession.”

Interest Rate

The central bank held its benchmark repurchase rate at 5 percent on Nov. 22 after a surprise cut on July 19 to stimulate the economy. South Africa’s gross domestic product will expand 2.5 percent this year, according to the bank.

Earlier today, the government statistics agency said retail sales growth eased to an annual 1 percent in October, from a revised 4.7 percent the month before. The median estimate in a Bloomberg survey of 10 economists was for growth of 4 percent. Sales fell 1.7 percent from a month earlier.

“The growth rate is likely to remain moderate in the months ahead as weak consumer confidence and high debt make consumers more cautious on spending on non-essential items, while high inflation erodes disposable incomes, offsetting the benefit of high wage settlements,” Nedbank Group Ltd., South Africa’s fourth-largest bank, said in an e-mailed note to clients.

The rand declined as much as 0.3 percent to 8.6988 a dollar and was trading at 8.6883 as of 1:23 p.m. in Johannesburg. The yield on the government’s 6.75 bonds due March 2021 dropped 2 basis points to 6.49 percent.

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