OLIVE BRANCH:
President
Cyril Ramaphosa
JOHANNESBURG - The lack of impetus showed by the manufacturing sector at the start of the second quarter and the flight of investors from emerging markets assets saw the rand tank to a more than three-month low yesterday.

The local currency, which was bid at R12.76 against the greenback before the release of April manufacturing output, weakened to R12.98 after the release of the data, before somewhat recovering to R12.92 by 5pm.

The local unit also lost significant ground against major currencies, shedding 1.96percent against the euro to R15.28 and 1.59percent to R17.34 against the pound.

Peregrine Treasury Solutions analyst Bianca Botes said the negative economic data brought to light the underlying structural struggles of the country as an emerging market.

“The rand was the biggest loser among emerging markets today (yesterday), as a sell-off of South African assets continued as orders on short positions were triggered,” Botes said. “We need tight fiscal management, pro-growth economic policy and political stability to achieve a growth trajectory that is in line with global markets.”

Activity data from Statistics South Africa showed manufacturing production decreased 0.6percent in April over the previous month.

This means that the sector began the second quarter of the year on the back foot, following a disappointing first quarter.

However, on a yearly basis, industrial output rose 1.1percent in April, following an upwardly revised 1.6percent drop in the previous month.

Manufacturing decreased 6.4percent in the first quarter, the biggest drop since the second quarter of 2015, and reversing from a 4.3percent gain in the prior quarter.

The sector was one of the main contributors to a shock decline in first-quarter gross domestic product.

NKC African Economics analyst Elize Kruger said the sector remained especially sluggish on a seasonally adjusted basis

Declined

“For the three months ending May, seasonally adjusted manufacturing production declined by 3percent compared with the preceding three months, with eight of the 10 manufacturing categories reporting negative growth rates,” Kruger said.

Figures released earlier this week showed that South Africa’s economy contracted by 2.2percent over the first three months of this year.

The official data suggest that the surge in confidence surrounding the February appointment of President Cyril Ramaphosa has not yet flowed through to the real economy.

FNB senior economic analyst Jason Muscat said that at the current rate, the sector would likely disappoint in the second quarter.

“Perhaps most disappointing is that the domestic manufacturing and export sectors have been unable to capitalise on relatively strong global growth and increasing demand,” Muscat said.

“Local purchasing managers' index numbers, which have seen a steady decline in the expected business conditions subcomponent, lead us to believe that the manufacturing sector will provide little in the way of growth through 2018.”

- BUSINESS REPORT