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South African Manufacturing Drops More Than Forecast

By Nasreen Seria

Oct. 8 (Bloomberg) -- South African manufacturing contracted at a faster pace in August, dropping an annual 15 percent in a sign the economy may be slow to recover from its first recession in 17 years.

The decline accelerated from a revised 13.5 percent in July, Pretoria-based Statistics South Africa said on its Web site today. The median estimate of 10 economists surveyed by Bloomberg was for a drop of 11.5 percent. Output slid a seasonally adjusted 2.8 percent in the month.

The rand’s 40 percent surge against the dollar in the seven months through September may be undermining a recovery in manufacturing by making exports more expensive. Manufacturing accounts for 14 percent of the economy and a faster contraction in output will be a further drag on gross domestic product, which shrank an annualized 3 percent in the second quarter.

“It’s going to be a very, very slow recovery,” said Monale Ratsoma, an economist at Thebe Securities Ltd. in Johannesburg. “It calls for patience in announcing that we are in total recovery mode. We may see a sharper improvement in the numbers in September.”

The rand was at 7.353 against the dollar as of 1:47 p.m. in Johannesburg from 7.3419 before the data was released. The yield on the R157 government bond, due 2015, was unchanged at 8.34 percent.

Car Production

Production of motor vehicles plunged 14.6 percent in August from the previous month, the statistics office said today. A slump in global demand has crimped car exports, which fell an annual 49.3 percent in September and a record 66.7 percent in August, according to the National Association of Automobile Manufacturers of South Africa.

The central bank left its benchmark interest rate unchanged at 7 percent last month, after cutting it six times since December to help spur spending. Today’s data probably won’t convince the Reserve Bank to resume cutting rates as signs are emerging that the economy may recover in coming months.

The Purchasing Managers Index, an indicator of factory output, rose the most in 17 months in September, Kagiso Securities Ltd. said on Oct.1. Confidence amongst manufacturers also doubled in the third quarter as a global recovery helped to boost demand for steel, iron and other metal products, the Bureau for Economic Research said on Sept. 14.

Manufacturing rose a seasonally adjusted 0.8 percent in the three months through August from the previous quarter, after dropping 0.3 percent between March and May, the statistics office said. That was the first quarterly increase since June 2008, it added.

To contact the reporters on this story: Nasreen Seria in Johannesburg at nseria@bloomberg.net

Tags:South Africa
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