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South African rand drops almost 2% as manufacturing slumps

South African Rand coins are seen in this illustration picture taken November 5, 2020. REUTERS/Mike Hutchings/Illustration

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JOHANNESBURG, Dec 9 (Reuters) – The South African rand dropped almost 2% on Thursday as manufacturing output slumped far more sharply than expected in October.

At 1532 GMT, the rand traded at 16.0000 against the dollar, around 1.88% weaker than its previous close.

Statistics South Africa data showed industrial production (ZAMAN=ECI) fell 8.9% year on year, versus economists’ predictions for a 1.4% decline, probably because of a strike in the steel and engineering sector.

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In other data releases, the current account surplus (ZACAGP=ECI) narrowed in the third quarter and mining output (ZAMNG=ECI) rose 2.1% in October.

South Africa’s economic recovery from the COVID-19 pandemic this year has been uneven across sectors, with riots in July contributing to an economic contraction in the third quarter.

“Weakening activity in key sectors in October put the recovery on the back foot. Output remained well below pre-pandemic levels in the manufacturing sector, with the retail and mining sectors just about recouping the losses suffered since early 2020,” Capital Economics said in a research note.

The rand had advanced for the first three days of this week, gaining more than 2% against the dollar as fears about the Omicron coronavirus variant eased because of early signs that it has mainly caused mild infections. read more

But the global mood turned more cautious on Thursday, as focus shifted to the release of U.S. inflation data on Friday and a Federal Reserve meeting next week.

Stocks were also weighed down by weak manufacturing data, with the all-share index (.JALSH) finishing 0.27% down at 72,207 points, while the blue-chip index of top 40 companies (.JTOPI) ended 0.32% lower at 65,779 points.

Sugar producer Tongaat Hulett Ltd (TONJ.J) was one of the main decliners, slumping 8.62% after it swung to a first-half loss and held back a dividend on Thursday, saying the civil unrest had had a 158 million rand ($10 million) impact on its profit.

Investors are now also worried about fresh steps in many countries to contain the spread of the new variant, with cases in South Africa continuing to climb.

“There’s still too much to learn about the variant to make firm conclusions but what we’re seeing is already enough for governments to be imposing new restrictions,” said Craig Erlam, Senior Market Analyst for UK & EMEA at OANDA.

“That doesn’t bode well for the economy in the near term, at least, and raises plenty of questions about what the coming months will bring.”

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Reporting by Alexander Winning and Nqobile Dludla

Our Standards: The Thomson Reuters Trust Principles.

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