MINING and manufacturing in SA remained vulnerable to renewed weakness in the global economy, the Reserve Bank said yesterday.

Although employment in manufacturing improved marginally in the first quarter of this year, coinciding with the R5,8bn spent by the Department of Trade and Industry on loans and grants, this was not sustainable without growth in the economy, it said.

In its Annual Economic Report, released yesterday, the Reserve Bank said the current growth rate of 3% was "far below" what was required to reduce SA's unemployment rate of 25,2%.

It said while its recent interest rate cut would be beneficial, it would not be enough to meaningfully reduce unemployment.

"We do not think that it's going to make significant inroads in reducing unemployment, but certainly we do think that the rate cut will contribute to economic activity," the Bank's chief economist, Monde Mnyande, said yesterday.

SA needed economic growth of 5% and above to reduce unemployment. This year the economy is forecast to grow at a slower pace than last year's 3,1%.

The Bank described employment recovery as "hesitant" and noted that only 448000 of more than 1-million jobs lost from 2008 to the third quarter of 2010, mainly in mining and manufacturing, had been regained.

The two sectors continued to be affected by the global slowdown, leading to reduced exports and weaker commodity prices.

Industrial action and safety-related work stoppages plagued the mining sector and uncertainty about nationalisation also weighed on it, the Bank's report noted.

"However, the uncertainty has subsided somewhat, as government indicated that instead of mining nationalisation, changes to mining taxation would be considered," it said.

Although employment in manufacturing increased marginally at annualised rates of 1,6% and 0,4% in the fourth quarter of last year and first quarter of this year , employment growth remained very hesitant.

Adcorp labour analyst Loane Sharp said international economic uncertainty, combined with weakness in SA's economy, suggested employment would be flat - even negative - over the next 12 months.

"Mining, manufacturing, construction and transport will be most affected," Mr Sharp said yesterday.

The report warned that, despite recent moderation in consumer food price inflation, food prices were expected to remain elevated for the rest of the year due to higher transport, electricity and wage costs.

Investment Solutions economist Chris Hart said add ed costs would be passed on to consumers. "Food inflation will reach consumers . quite quickly. The rise in international maize prices will feed through to meat, chicken and dairy, and a wide range of other foodstuff."

maswanganyin@bdfm.co.za