July 2, 2004

By Mariam Isa

Johannesburg - Manufacturing expanded for the eighth consecutive month in June, a survey showed yesterday, providing further evidence that a recovery in the sector was gaining momentum.

The purchasing managers' index (PMI) rose to 58.1 during last month from
56.4 in May, with business activity and sales both up, sponsor Investec Asset Management said.

But all of the other components within the overall index fell, including prices and employment, suggesting that while the stronger rand might be helping to curb costs, it was putting pressure on profits.

"The strong currency continues to inhibit the recovery but is not preventing it from strengthening in response to the buoyant underlying demand conditions, particularly in the domestic market," Investec's Andre Roux said.

The local currency firmed by nearly 7 percent to a seven-month peak of
R6.115 to the dollar during June.

Analysts said the unit might even break the key R6 level for the first time since 1999, which would put more pressure on exports. 

The manufacturing sector, which accounts for nearly a fifth of the economy, emerged from a prolonged recession in the first quarter.

It increased by a seasonally adjusted 2.6 percent in the year to April, down from a 3.1 percent rise in March.

But the slowdown was attributed to the high number of public holidays during April.

A separate survey on manufacturing confidence released by the independent Bureau for Economic Research showed that morale in the sector increased in the second quarter but that the strong rand might hamper its recovery.

"The PMI hints strongly that the recovery in manufacturing remains under way, but the rand is still a restraining influence on manufacturing activity," said Brait economist Colen Garrow.

"The pickup in business activity is encouraging but the drop in employment is inconsistent with the overall message," said CSFB emerging market analyst Peter Worthington.