September 11, 2018 / 11:37 AM / 9 months ago

UPDATE 2-S.Africa's manufacturing up but economy not out of the woods

* July manufacturing expands more than expected

* Rand extends gains on manufacturing data

* Business confidence however falls further

* Land reform plans unnerving investors (Adds business confidence data, analyst comment)

By Mfuneko Toyana and Nomvelo Chalumbira

JOHANNESBURG, Sept 11 (Reuters) - South Africa’s industrial output expanded in July as food and motor vehicle output rose, data showed on Tuesday, a hopeful sign for an economy that slipped into recession and is facing possible credit downgrades.

Business confidence data, however, fell as firms fretted over the impact of higher inflation on consumer spending as the economy failed to deliver on investor enthusiasm earlier this year after Cyril Ramaphosa’s election as president in February.

Africa’s most industrialised economy slumped to a recession for the first time in nearly a decade, according to data released last week, as manufacturing, agriculture and retail shrank.

South Africa’s statistics agency said manufacturing output rose by 2.9 percent year-on-year in July, following a revised 0.6 percent expansion in June. Analysts polled by Reuters had expected a 1.1 percent year-year-on-year increase in July.

The rand strengthened to 15.0850 per dollar from 15.1200 before the data’s release.

Manufacturing contributes 13 percent of gross domestic product and 11 percent of employment and is seen as key to achieving the economic growth that will help the country reverse record-high unemployment and avoid deeper credit downgrades.

“The stronger-than-expected growth...suggests the economy made a good start to Q3. But more timely surveys indicate this momentum hasn’t been maintained over the course of the third quarter,” said William Jackson of Capital Economics.

Ramaphosa staked his campaign on reviving the limp economy by luring investment that stagnated under his predecessor Jacob Zuma, but enthusiasm about his pledges has waned due to weak data and policy uncertainties, including plans for land reform.

Third quarter business confidence data, also released on Tuesday, revealed the fragility of any expected recovery.

The survey showed confidence fell to 38 points in the third quarter from 39 points in the second, further below the 50-mark that separates expansion from contraction.

Business confidence had raced to a 2-1/2 year high in January after Ramaphosa’s election as leader of the African National Congress (ANC) in December, buoyed by promises to revive the economy and clamp down on corruption.

But his government’s plan to expropriate land without compensation to redress racial disparities in ownership have unnerved investors over concerns on property rights.

Ramaphosa and senior ANC officials have sought to reassure investors that land reforms would be carried out in an orderly manner and not affect agricultural production.

“Despite the ANC’s recent placatory statements on expropriation without compensation, this has not resulted in improved business confidence,” chief economist at Investec Annabel Bishop said. (Editing by James Macharia and Mark Heinrich)

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