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Manufacturing output tempers recession fears

Manufacturing jumps but, weak quarter-on-quarter and mining shrinks for third month in a row.

South Africa‘s manufacturing output rose again in May after a disappointing first quarter as production of motor vehicles and durable consumer goods increased, offering hope the economy will avoid slipping into recession.

The continent’s most industrialised economy suffered its worst quarterly contraction in nine years last quarter, reminding investors of the battle President Cyril Ramaphosa faces to deliver long term growth.

A contraction when second quarter gross domestic product figures are published in September will push the economy into technical recession.

Analysts said consumer spending along with the services sector would be key to avoiding a contraction.

“This economy is still very weak. June mining and manufacturing figures will have to be spectacular if we’re going to get a positive contribution to second quarter growth,” said senior economist at Nedbank Nicky Weimar.

May manufacturing output expanded by 2.3% year-on-year in May and was up 1.5% on monthly basis, but contracted 1.5% quarter-on-quarter.

Mining figures published earlier on Tuesday showed a 2.6% contraction in May.

Once the country’s lynchpin along with manufacturing, mining output has shrunk rapidly and is struggling for investment after years of volatile labour relations, rising costs, regulatory disruptions and technical issues.

Manufacturing output has also waned, hit by slack business and consumer confidence, with both indicators hitting record lows during former president Jacob Zuma’s presidency, which was marred by policy and political missteps.

Ramaphosa’s appointment in February initially lifted investor sentiment and helped the country avoid credit downgrades to junk, but weak economic indicators since and sharp slide in the rand have dented enthusiasm.

“The hopes for a rekindling of the economy following the change in government in South Africa have almost entirely evaporated,” said analyst at German-based Commerzbank Elisabeth Andreae. 

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