The South African economy which recently slipped into recession, expanded its manufacturing output in July, as food and motor vehicle production rose. This development eased the pressure on the country, especially amidst policy uncertainty and possible credit downgrades.
Analysts polled by Reuters had expected a 1.1% year on year increase in July. However, South Africa’s statistics agency noted that the manufacturing output increased by 2.9% year on year, after a revised 0.6% expansion in June.
The Rand responded positively to this development, strengthening to 15.0850 from 15.1200. Analysts note that manufacturing which contributes 13% of gross domestic product and 11% of employment, will bounce back for the rest of 2018, as inventories are replenished.
Senior economist at Nedbank, Isaac Matshego, suggested “this could be early signs of stabilisation in the sector, but we cannot rule out shocks, especially as trade conditions are affected by the US-China trade war”.
The country went into recession last week, as production in the manufacturing, retail and agricultural sectors reduced. The Finance Minister, Nhlanhla Nene warned the revenue collection could fall below target due to recession.