JOHANNESBURG (Reuters) – Growth in South Africa’s two key sectors slowed on Thursday, with weak activity renewing fears South Africa may struggle to avoid recession and a downgrade of its debt to junk status by year’s end.
Manufacturing output braked to below 1 percent year-on-year while mining output contracted sharply, dousing optimism earlier in the week after second quarter gross domestic product bounced back from a contraction in the first quarter.
Manufacturing slowed to 0.4 percent year-on-year in July, well below expectations of 3 percent after rising by a revised 4.7 percent in June.
Mining output contracted by 5.4 percent in the month from a 3 percent contraction previously, data from Statistics South Africa showed, below expectations of a 1.4 percent contraction.
Production of electrical machinery shrank 13.7 percent, basic iron by 4.9 percent and vehicle production by 3.8 percent, all on a year-on-year basis.
“The first Q3 South African output data support our view that the rapid growth reported in Q2 is unlikely to be sustained,” Africa analyst at Capital Economics John Ashbourne said in a note.
Africa’s most industrial economy grew by a surprise 3.3 percent in Q2, data on Tuesday showed, but was only up 0.6 percent year-on-year, prompting analysts and the central bank governor to warn that growth remained insufficient.
Reserve Bank Governor Lesetja Kganyago said on Wednesday that current levels of growth were inadequate and needed to be closer to 6 percent. The Bank forecasts zero percent growth in 2016.
Ratings firms Fitch and S&P Global Ratings, which both rate South Africa’s debt one notch above junk status, have cited low growth as possible trigger for a downgrade in reviews in December.
(Reporting by Mfuneko Toyana; Editing by James Macharia and Jon Boyle)
