South Africa’s manufacturing output quickened in June, suggesting rising interest rates would not dampen growth in the continent’s biggest economy.

Production rose by an unadjusted 6.1 per cent in volume terms in the year to June, accelerating from an upwardly revised increase of 5.6 per cent in May, data from Statistics South Africa showed.
The central bank raised its key repo rate by half a percentage point to 7.5 per cent early in June — the first hike in nearly four years. It was followed by a similar rise to 8.0 per cent last week.
“The fact that the manufacturing sector is still growing (raises) confidence to increase interest rates,” Citadel economist Dave Mohr said.
“That, plus the fact that domestic demand is still growing, further strengthens the case that we will see further interest rate increases in the coming months.”
Manufacturing accounts for nearly 17 per cent of South Africa’s economy and is rebounding from a slowdown late in 2005 blamed on sustained strength in the rand, which has depreciated by about 14 per cent on a trade-weighted basis so far in 2006.
The country’s Purchasing Managers’ Index (PMI) — which points to trends in manufacturing ahead of official data — leapt to a record peak in July with its fifth consecutive monthly rise.
“It is a pleasing number which one hopes was not only boosted by the rand’s depreciation in May through to June, particularly given the recent rate hikes,” said Econometrix Treasury Management Economist Monica Ambrosi.
“Data from July onwards will be more telling of whether the sector is in real recovery. I suspect July’s number will still be positive.”
South Africa’s faster pace of growth over the past couple of years has been driven mainly by surging domestic demand, which rocketed by 14.5 per cent in the first quarter of 2006. But the trend has also ushered in a growing tide of imports which have grabbed market share from locally produced products and eroded exports, especially from the manufacturing sector.