Manufacturing and mining sectors could ease recession in SA
Mining production is up by 0.6% in the second quarter, while manufacturing increased by 1.5%, latest figures show.
FIGURES released yesterday by StatisticsSA showed that South Africa’s mining and manufacturing output in the second quarter of this year was likely to help the economy out of the technical recession it currently finds itself in.
Mining figures showed that while production fell by 0.8 percent year-on-year in June, on a quarterly basis production in the sector increased by 0.6 percent in the second quarter, compared with the first quarter.
Manganese ore was the largest positive contributor in mining production in the quarter after it ticked up 1.1 percent.
Kamilla Kaplan, an economist at Investec, said mining production was expected to make a positive contribution to the second quarter’s gross domestic product (GDP).
“The magnitude of the rebound in commodity prices seen in the second half of last year has faded somewhat, while operating cost pressures for mining producers remain elevated.
“This will likely temper the extent of recovery in the mining sector production this year – from a 4.3 percent decline last year.”
The challenging broader economic growth backdrop, coupled with persistent regulatory and policy uncertainty linked to the revised Mining Charter, would continue to dampen business sentiment in the mining sector and both the fixed-capital expenditure and employment growth in the industry,” Kaplan pointed out.
Earlier this month, SA Reserve Bank governor Lesetja Kganyago warned that the country’s economic recession could deepen, unless there was policy certainty on mining and agriculture, the two sectors that contributed to growth in the first quarter.
Manufacturing production increased by 1.5 percent in the second quarter of 2017, compared with the first quarter of the year, while six of the manufacturing divisions reported positive growth rates during this period.
The largest contributors were the food and beverages division, which surged 4.1 percent in the quarter, and motor vehicles, parts and accessories as well as the transport equipment division, which saw a 3.7 percent increase in the period.
But on a year-on-year basis, manufacturing production decreased by 2.3 percent in June this year, compared with the prior period.
The largest negative contributions to production were reported in the petroleum, chemical products, rubber and plastic products, which declined by 10.6 percent.
Together, mining and manufacturing make up about 20 percent of the country’s GDP.
John Ashbourne, an Africa economist at Capital Economics, said South Africa’s mining and manufacturing sectors both contributed positively to headline growth in the last quarter and if retail sales figures expected next week picked up, then GDP would rebound faster than was expected during the second quarter.
“The recent worsening performance of the sector was due to a fall in the production of platinum group metals. Strong iron ore output helped to counterbalance this in April and May, but the deterioration in this sub-sector’s performance pushed overall output into negative territory in June.
“Growth in the seasonally adjusted quarter-to-quarter rate that aligns with the GDP also slowed, but remained positive at 0.6 percent.
“Much depends on the performance of the crucial retail sector. The surprise GDP contraction in the first quarter was largely due to the poor performance of consumer spending, which had traditionally been one of the economy’s few reliable sources of growth,” Ashbourne pointed out.
Mining output has shown a 0.6 percent second quarter up-tick.