South Africa October vehicle Sales Rise

Posted 03 November 2006 @ 05:57 am EET     Print     Reprint     E-Mail     Comments

JOHANNESBURG (Reuters) - New vehicle sales in South Africa rose 14.1 percent in the year to October, data showed on Thursday, staying on track for another record in 2006 despite rising interest rates.

Vehicle production is one of the biggest industries within South Africa's manufacturing sector which accounts for some 17 percent of gross domestic product. The car industry is forecast to produce about 620,000 vehicles this year, with about 190,000 units exported.

The National Association of Automobile Manufacturers (NAAMSA) said new vehicles sales rose to 57,848 units in October from 50,682 a year ago, while monthly sales were 0.4 percent higher than September's 57,599 units.

NAAMSA said growth in new vehicle sales was expected to consolidate on the back of recent and expected further rises in interest rates, increases in factory gate prices and a weaker rand.

"Particularly, the anticipated tighter monetary environment and rising new car prices (are) expected to contribute to further consolidation in the rates of growth in new vehicle sales," it said.

South Africa's central bank has hiked its repo rate by 150 basis points since June to curb inflation and most analysts expect at least one more half percentage point rise to 9.0 percent at its December policy meeting.

JP Morgan economist Marisa Fassler said trade data would benefit from slowing vehicle sales growth as interest rate hikes start to bite and, subsequently, dampen car imports.

"Some evidence of this was already seen in the September trade figures, which showed imports of vehicles and transport equipment down 10 percent month-on-month," Fassler said.

Higher interest rates are likely to cut growth in vehicle sales as consumers curb spending.

"As from next year we can expect growth to slow down to single-digit numbers, while high volumes this year are likely to result in negative growth in some months next year, as demand slows down," Standard Bank economist Danelee van Dyk said.

But the data showed vehicle sales were still on course for another record year in 2006, with total sales in the first 10 months of the year up 15.6 percent at 541,982.

APPETITE FOR IMPORTS

Demand for imported cars, built up during the years under a strong currency and low interest rates, have helped lead to large monthly trade shortfalls that have swelled the deficit on the current account to more thna 6 percent of gross domestic product.

However, a weaker local currency the rand is around 15 percent weaker against the dollar this year, knocked by the current account deficit augurs well for total vehicle exports which were up 8.3 percent in October at 17,261 over a year ago.

South African exports this month were also higher than September's 15,313 units.

Vehicle exports are growing in importance in South Africa and the industry is seen as a key way to cut stubbornly high unemployment, officially estimated at 25.6 percent.