S.Africa factory output falls, rates seen on hold
Friday, 11 May 2012
South African manufacturing output contracted for the first time in seven months in March as demand from major trading partners such as Europe waned, surprising investors and pointing to weak first quarter growth and flat interest rates for this year.
Output fell 2.7 percent year-on-year in volume terms in March, compared to expectations of 3.3 percent growth, Statistics South Africa said on Thursday.
Manufacturing growth had surprised analysts with a 4 percent jump in February and economists were optimistic the sector was finally picking up momentum.
Factory output contributes about 15 percent to gross domestic product (GDP) and is one of the main contributors to jobs. Unemployment rose to 25.2 percent in the first quarter.
The contraction does not bode well for first quarter growth, to be released at the end of the month.
"By and large this is a reflection of how bad the external environment is and the effect on our local domestic production," said Colen Garrow, an independent economist.
On a month-on-month basis, production fell 4.3 percent, but grew by 1.9 percent in the three months to March compared with the previous three months.
The data backs up the prevailing view that the central bank will not raise interest rates when it policy committee meets in two weeks.
"Overall the March print should remind the South African Reserve Bank that domestic growth is far from picking up pace and will allow them keep with their neutral stance at the May meeting," said Anisha Arora, an emerging market analyst at 4Cast.
The bank has left its policy rate unchanged at 5.5 percent in the last 17 months to aid economic recovery after a 2009 recession.
Central bank Governor Gill Marcus said on Monday the expected inflation trajectory suggested "limited, if any room for further monetary accommodation at this stage."
The rand initially weakened to 8.0457 after the data from 8.0190 before the number was released. However, it quickly recovered and was trading back at 8.0155 at 1156 GMT.
