SA’s factory and mining output slumps

Johannesburg - South Africa’s economy, which narrowly avoided a recession last year, is off to a bad start in 2016 as manufacturing and mining output, which together make up about a fifth of gross domestic product, contracted in January.

Factory output shrank 2.5 percent from a year before, the biggest decline since July 2014, when a four-week strike in the vehicle and car-parts industry halted production. Mining production fell for a fifth consecutive month by 4.5 percent, the statistics office said on Thursday.

Read: Mines face deeper debt if SA's rating falls

The data reflects a “combination of weak global demand dynamics, particularly from China, and the ongoing structural growth constraints that we have domestically”, Jeffrey Schultz, an economist at BNP Paribas Securities, said by phone from Johannesburg on Thursday. “Effectively, the manufacturing sector is operating at recessionary levels.”

Forecasts from the Reserve Bank to the International Monetary Fund show Africa’s most-industrialised economy will probably expand less than 1 percent this year after growing 1.3 percent in 2015, knocked by the worst drought in more than a century, low commodity prices and weakening demand from its biggest export market, China.

Low growth is a key concern of credit-rating companies, such as Standard & Poor’s, as they threaten to downgrade the nation’s debt to junk. Moody’s Investors Service said on March 8 it’s putting South Africa’s Baa2 rating on review because of “continuing rise in risks to the country’s medium-term economic prospects and to its fiscal strength.”

A downgrade by Moody’s will move its rating to one level above junk and on par with that of Fitch Ratings and S&P.

The biggest declines in manufacturing came from the iron and steel industry, which contracted 10.2 percent in January from a year earlier, while production of vehicles and car-parts slumped 11.2 percent, the statistics agency said.

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