The dip in South African manufacturing activity shows the economy’s recovery from recession is tenuous, Finance Minister Pravin Gordhan said today. However, the net growth trend was intact and the soccer World Cup was an opportunity to further boost the economy after last year’s contraction, he told Reuters.
South Africa’s purchasing managers index fell below the key 50 mark in June, signalling contraction for the first time since October last year. “These numbers merely indicate that whilst there is a net upward trend that there are issues of concern,” Gordhan said at the Soccer City stadium.
“I think we have always said we have a recovery but we have a tenuous recovery and that employment, for example, will be slow to recover.” The weak global economic environment posed constraints, highlighting the need to look for new markets and to diversify what South Africans export, he said.
Africa’s biggest economy pulled out of recession in the third quarter of last year and growth data has largely surprised on the upside but risks remain, with some data, particularly employment, worryingly soft. The official jobless rate is just over 25 percent. Kagiso Securities said on Thursday the PMI dropped to 48.4 last month from 51.1 the previous month and 60.4 in February. A number less than 50 means contraction in manufacturing activity.
Gordhan said the economy was still doing better than in most countries, with the hosting of the world’s biggest soccer tournament an added boost. “The main thing for South Africa that comes through from the current global context is that we can’t rely on traditional markets, that unless we begin to diversify as a country, both what we produce and where we export to, and what we consume in South Africa itself, then we have challenges ahead of us,” he said.
“We are doing better than most would be doing but we could do better if we can restructure.” Gordhan earlier told reporters the month-long World Cup, which ends on July 11, would add at least 0.4 percentage points to economic growth this year, with the number possibly rising given indications more than expected foreign fans had visited the country.