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UPDATE 1-S.Africa's manufacturing output contracts in February as recession looms
April 11, 2017 / 1:17 PM / 5 months ago

UPDATE 1-S.Africa's manufacturing output contracts in February as recession looms

(Adds details, analyst comment)

JOHANNESBURG, April 11 (Reuters) - South Africa’s manufacturing output plunged in February as a sustained slump in consumer and business confidence hit the economy’s second biggest sector, raising worries of a recession.

Continued signs of weak growth could strangle economic activity and trigger further credit downgrades after last week’s moves by S&P Global Ratings and Fitch to label South African bonds as “junk” after Jacob Zuma fired his finance minister. Growth shrunk 0.3 percent in the final quarter of 2016 and a second consecutive contraction in the first quarter of 2017 could see the continent’s most industrialised economy slip into technical recession for the first time since the 2008-2009 global crisis. First quarter growth data is due in early June.

Statistics South Africa said on Tuesday that manufacturing output shrunk 3.6 percent year-on-year in February and 0.4 percent on monthly basis.

The largest contractions were seen in the petroleum and furniture categories, which fell 4.4 percent and 4.2 percent respectively, according to the data.

“This is very disappointing, and it comes when other sectors like retail are also struggling,” said Kevin Lings, chief economist at Stanlib. “If it weren’t for the improved agricultural numbers the economy would definitely be facing recession,” he said.

A South African Chamber of Commerce and Industry index last week showed business confidence continued to retreat in March as rising political tension and a sliding currency weighed on sentiment. Consumer confidence also remains deep in negative territory.

In March, the central bank estimated growth of 1.2 percent in 2017. But on Monday, it said it would likely revise its estimates downwards on the back of political wrangling and credit downgrades.

Governor Lesetja Kganygo said while it was too early to know if a recession was imminent, rising capital costs due to the downgrades would force businesses to rethink any new investments. (Reporting by Mfuneko Toyana; Editing by James Macharia and Tom Heneghan)

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