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Manufacturing, mining subdued as growth burden shifts to central bank

Both sectors are struggling due to power cuts, low investor confidence and political uncertainty.

South Africa‘s manufacturing output grew only slightly in May while the slump in mining continued, albeit more moderately, shifting attention back onto the central bank to stimulate growth in an economy bleeding jobs.

Factory output rose 1% year-on-year in May while mining production fell 1.5% for the month, Statistics SA said on Thursday.

The two sectors account for about a quarter of gross domestic product and are large employers, but both sectors have struggled due to a combination of power cuts, low investor confidence and political uncertainty.

The first half of 2019 saw growth in Africa‘s most industrialised economy shrink by the most in a decade and risks of a credit downgrade to full sub-investment grade rise even after the election of business-friendly President Cyril Ramaphosa in May.

Slack growth has seen calls for the Reserve Bank (Sarb) to focus more on economic growth and jobs grow louder, with treasury and senior officials in the ruling African National Congress (ANC) publicly wrangling over the central bank’s mandate.

The bank is set to cut interest rates by a quarter of a percent next week, a Reuters poll showed on Thursday, but its own policymakers as well as analysts doubt whether rate cuts will have an impact on long term growth.

“A 25 basis point cut will have a limited impact on the economy. It’s more of a reversal of the rate hike we saw in November. Unfortunately, the issues this economy faces are structural rather than to do with monetary policy,” said Jeffrey Schultz of BNP Paribas.

Read: Reserve Bank expected to cut rates on July 18

On Tuesday central bank Deputy Governor Kuben Naidoo said weak growth and the resulting rise in public debt and budget deficits had introduced risks which had to be taken into account by monetary policy, but that ultimately it was fiscal policies that would see growth return. 

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