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Bleak mining and manufacturing picture puts rate increase in doubt

THE dire state of the economy was reiterated on Thursday with data on mining and manufacturing output showing a sharp deterioration in April.

The persistent sluggishness in the economy, due largely to power outages, will put the Reserve Bank in a difficult position when it comes to the timing of the next interest rate hike.

The Bank — whose monetary policy committee meets next month — has to raise rates to curb rising inflation but also has to take into account the effect a hike will have on weak economic growth. The disappointing data came as Eskom senior GM Andrew Etzinger said load shedding would continue “for the coming months at least”.

The Manufacturing Circle called for greater alignment in policy, saying manufacturing was necessary to help the economy grow faster.

Intensive power outages led manufacturing output to contract 2% compared with a year earlier in April, after increasing 4% in March, Statistics SA data showed.

Manufacturing contracted in the first quarter and its decline at the start of the second quarter does not augur well.

Mining output growth moderated to 7.7% in April compared with a year ago.

Mr Etzinger told a Nedgroup Investments conference that load shedding would continue for a few more months due to maintenance at power stations.

Delays in the construction of new power stations, particularly at Medupi, had been as “extremely frustrating” for Eskom as they had been for users, taking into consideration cost overruns, he said.

Eskom moved into stage 2 load shedding again on Thursday despite saying it would avoid outages this winter once Koeberg returned to service last week.

Weak economic growth has played a major role in the Bank keeping rates stable since the last hike in July last year. MD Dennis de Jong said that hope for an interest rate increase in the short term had “surely been dashed for now” given the poor mining and manufacturing production numbers.

Nedbank economist Nicky Weimar said output in these two industries was unlikely to improve significantly in the near future due to weak demand, lower commodity prices and the effect of power cuts.

She said these industries were also exporters, which meant bigger burdens for them in terms of road, rail and port tariffs.

Manufacturing Circle executive director Coenraad Bezuidenhout said the government’s policies to promote the manufacturing sector were not aligned, which meant they were not having as significant an effect as they would have if there were greater co-ordination between departments.

Research commissioned by the organisation highlighted the importance of greater policy alignment across the government to keep the manufacturing sector resilient and create a positive policy environment for its growth.

The sector is mired in negative sentiment as a result of the lack of security over reliable energy and water supplies, instability of the labour market and uncertainty over the future of electricity prices.

“Given manufacturing’s strong multiplier effects, it is certain that once such alignment is addressed we will see manufacturing pull ahead to drive growth trends in the country, rather than merely mirroring them,” Mr Bezuidenhout said.


Source – BDLive