S. Africa Manufacturing Output Falls 2.9% in February

South African manufacturing output unexpectedly contracted in February as stagnant domestic and global growth curbed demand, offsetting the benefits of a weaker rand.

Factory output declined to 2.9 percent from revised growth of 3.7 percent in January, Pretoria-based Statistics South Africa said on its website today. The median estimate in a Bloomberg survey of nine economists was for 2.1 percent growth. None of the economists expected a contraction. Output slipped 3.1 percent in the month.

“It doesn’t look great,” Kevin Lings, an economist at Stanlib Asset Management in Johannesburg, said in a phone interview. “Manufacturing has been under pressure for quite some time. You don’t have currency weakness and then immediately see it coming through in the manufacturing numbers.”

A recession in Europe, which accounts for a fifth of South African exports, and local labor unrest have curbed growth and undermined consumer confidence in South Africa. The Reserve Bank and National Treasury expect the economy to expand 2.7 percent this year, less than half the 7 percent the government is targeting to address a 24.9 percent unemployment rate. Manufacturing makes up about 15 percent of South Africa’s gross domestic product.

Rand Weakness

While the rand’s 4.6 percent slump against the dollar this year is aiding exporters, it is also pushing up the cost of oil and other imports, adding to pressure on inflation.

The rand traded at 8.8946 per dollar at 1:50 p.m. in Johannesburg, little changed from before the release of the data. Yields on 10.5 percent bonds due December 2026 dropped one basis point, or 0.01 percentage point, to 7.04 percent.

The central bank has kept its benchmark interest rate unchanged at 5 percent, the lowest in more than 30 years, since July to bolster growth and consumer demand. Consumer confidence slumped to the lowest level in nine years in the first quarter, First National Bank and the Bureau for Economic Research said in an e-mailed statement on April 9.

Production of iron, steel and metal products and machinery slumped an annual 8.2 percent, output of food and beverages fell 3.7 percent while production of glass and non-metallic mineral products declined 7.4 percent, the statistics agency said.

“Demand conditions will remain challenging, especially for the large export-orientated industries, given recession in the Eurozone and volatile performances elsewhere in the world economy,” Nedbank Group Ltd., South Africa’s fourth-largest bank, said in e-mailed comments. “The general operating environment is also expected to remain unfavorable with high electricity costs, rising unit labor costs and expensive transport and logistics.”

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