Ayanda Shezi

Economics Correspondent

MANUFACTURING production growth slowed to 5,8% year on year in July from an upwardly revised 6,3%, but confirming that the sector continued to benefit from a weakening rand in recent months.

Statistics SA data released yesterday show that in the month, production was down 0,7%. In the three months to July, manufacturing production was up 2,9%.

Slowing global activity, as well as higher interest rates, which are expected to curtail local demand, are likely to weigh on the sector in coming months. The sector, which contributes just more than 16% to gross domestic product, is, however, still expected to remain one of the biggest contributors to economic growth in the remainder of this year.

Sectors benefiting from construction, infrastructure spending and retail sector activity should continue to experience favourable conditions, according to Nedbank economist Annari de Waal.

Brait economist Colen Garrow said yesterday: “Prima facie, rand weakness suggests support for manufacturing activities in the export-driven industry. However, persistent currency weakness also invites monetary tightening.”

This in turn slowed growth in household consumption expenditure, a significant driver for local manufacturing.

“In addition, expectations of further monetary tightening may not only stabilise the rand in an environment where risk aversion towards emerging markets persists, but may at some point strengthen the local unit, much to the chagrin of those exporters who had pinned their hopes on the rand remaining weak long enough to magnify their earnings,” Garrow said.

The rand has weakened about 14,1% against the greenback so far this year, and was yesterday quoted at about R7,35 to the dollar.

The Investec purchasing managers index (PMI), a leading indicator of manufacturing activity, has been quite accurate in predicting a recovery in the sector, as the index has continued to climb above the critical level of 50 since March, on the back of an improvement in manufacturing production.

The PMI for last month dipped to 59,8 last month, from 63,2 in July. August manufacturing data, which are due out next month, are thus expected to remain strong, although they may decline further from current levels.

“We remain confident that the overall manufacturing output performance should remain fairly solid over the next few months,” Vunani Securities chief economist Johann Rossouw said.

He said that further interest rate hikes were expected at the next two monetary policy committee meetings. The Reserve Bank has hiked rates by 100 basis points already this year.

“This should eventually culminate in slower consumer demand and manufacturing output growth.”

Meanwhile, Statistics SA yesterday delayed the release of June retail sales data until September 21.