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ECONOMISTS are wary of the devastating impact of the escalating trade spat between global giants United States and China on declining manufacturing production in South Africa, the continent’s most advanced economy.
The US and China have in recent weeks been entangled in tit-for-tat tariffs, raising fear the spat could halt the global economy.
The tiff between Washington and Beijing coincides with manufacturing in the African country falling far short of market expectations, according to recently-released statistics for February.
Total output fell by a seasonally adjusted 2,4 percent month -on-month, which contained the annual increase to a modest 0,6 percent, down from 2,3 percent in January and much weaker than the market forecast of an acceleration to 2,6 percent year-on-year growth.
Over the month the disappointing outcome was mainly the result of sharp declines in the production of petroleum products, other chemicals, food products and basic iron and steel, according to Nedbank, one of South Africa’s leading financial institutions.
Nedbank economists noted over the year the weakness was widespread, with lower output reported in six of the ten major manufacturing divisions.
The sharpest declines were recorded in petroleum, chemicals and rubber and plastics sectors, which were down 2,8 percent y-o-y) as well as wood, paper, publishing and printing (down 3,1 percent).
These developments contained the impact of higher production in food and beverages (up 4,3 percent), glass and other non -metallic mineral products (up 12,9 percent) as well as motor vehicles and other transport equipment (up 5,5 percent).
Dennis Dykes and Nicky Weimar of the Nedbank Group Economic Unit, said while the recovery in manufacturing production, which started towards the end of last year, was still expected to gather momentum during the remainder of the year thanks to local and global demand as well as firmer international commodity prices, the China-US war could emerge a deterrent to recovery.
“However, the upside is likely to be limited by a stronger rand and continued domestic cost pressures,” the Nedbank economists said.
“The manufacturing sector is also particularly vulnerable to any further escalation in the trade war currently raging between the US and China.”
Dykes and Weimar added the escalating trade war was threatening to undermine both global growth prospects and investor sentiment, which could alter global risk appetites, with potentially negative consequences for domestic growth prospects and the inflation outlook through its impact on the rand.
Isaah Mhlanga, the Rand Merchant Bank (RMB), said the trade tensions between the two economic powerhouses impacted global equities and commodities markets while exhibiting no signs of easing.
He pointed out Chinese President, Xi Jinping, vowed to open up China’s economy further, explicitly mentioning vehicle imports, on which the US colleague, Donald Trump, had threatened to impose taxes.
However, in what RMB described as a “China-US Russian roulette”, the US imposed new sanctions on Russia, which impacted commodity prices and emerging market currencies including the volatile South African currency, the Rand.
The sanctions against Russia come in the wake of indications of a military clash with the US if Trump orders a military strike in Syria in response to chemical attacks in rebel-held zones this past weekend.
The rand meanwhile has sold off, reaching a two-month high of 12,15 against the US Dollar earlier this week before it failed to break through.
Mhlanga noted this was the fourth “higher high” since mid-March, with three of these new highs recorded in the past two weeks.
“Similar trends are visible against the Euro and British Pound and acrossother emerging market currencies,” the RMB economist said.
“There are two obvious drivers that are responsible for these trends,” he added.
The Dollar index has been trending higher since mid-February. Commodity prices, particularly metals, have declined since the beginning of February.
Iron ore is down 15 percent, platinum and coal are down 7 percent and 3 percent, respectively, on the back of the Chinese-American trade spat, Mhlanga pointed out. – CAJ News