Global slowdown set to hit factories, mining

Manufacturing and mining production will be in focus in the week ahead. Performance of these major sectors is expected to disappoint as they battle a tough global environment and domestic uncertainty.

The median forecast among economists polled by Bloomberg is for Stats SA data on Thursday to show manufacturing production contracted 1.5% year on year after falling 1.1% in July.

The sector, which contributes about 14% of GDP, has been affected by weak domestic demand and subdued export growth due to the effect of the US-China trade war.

The outlook does not look any better, with manufacturing activity having fallen to its worst level in a decade in September, according to Absa’s purchasing managers’ index (PMI).

Weak manufacturing figures from the US and the eurozone add to concern that the global economy is in danger of slowing.

“The deteriorating global macroeconomic backdrop was reinforced by the latest release of global manufacturing PMIs that signalled that manufacturing is headed for a recession amid a synchronised global downturn,” said Investec economist Kamilla Kaplan.

“Against this tenuous global backdrop and persistently weak domestic demand, SA’s manufacturing PMI has dropped to its lowest level since the 2008/2009 recession,” she said.

According to a Bloomberg median forecast, mining production is likely to have shown little or no growth after an increase of 2.4% in the previous month. The data is also due on Thursday.

FNB economists, however, expect “another relatively steady increase in the August release”, but said that this was off a low base, with the sector having contracted 6.7% in 2018.

Despite growing 14.4% in the second quarter of the year, rebounding from the effects of load-shedding, it is still confronted by dwindling demand, potential labour strikes and the controversial third version of the Mining Charter.

“Underlying output activity is constrained by a persistently uncertain policy environment, an escalation in operating costs and periods of labour unrest,” Kaplan said. “The sector also faces an increasingly challenging global environment as slower growth, particularly in China and the US, would dampen the global demand for commodities.”

The SA Chamber of Commerce and Industry business confidence index is expected on Wednesday to have fallen further in September, having fallen to a 34-year low of 89.1 index points in August. The median forecast according to a Bloomberg poll is for the index to fall to 89, as business people become more wary about the growth prospects of the domestic economy.

The waning business confidence comes as President Cyril Ramaphosa faces pressure to implement the government’s promised growth-boosting economic reform agenda.

Expectations on SA’s economic growth in 2019 have fallen steadily in past months, with the Reserve Bank in July slashing its forecast to 0.6% from 1.7% at the beginning of the year.