Modest growth lifts sector out of recession

The mining sector has pulled out of recession, posting modest growth in the second quarter, according to figures from Statistics SA released on Tuesday.

Month on month, mining production increased by 2.8% in June. The country is estimated to have the world’s fifth-largest mining sector in terms of economic value. In 2017, mining contributed 8% to SA’s GDP.

“The sector has moved out of recession in the second quarter and as such will be a slight positive contributor to GDP growth in the quarter,” said NKC analyst Gerrit van Rooyen.

The sector responded to the exchange rate and the depreciation of the rand provided support for the sector, he said.

The rand was particularly weak against the dollar in June, losing a monthly 8.06% against the greenback. It hit a best level of R12.52 in intraday trade in the month, but weakened to R13.73 at the end of June.

Most analysts think the growth in the mining sector, the first time in four months, might just be a blip.

FNB senior economic analyst Jason Muscat said despite the boost in June, the industry remained in a critical state.

The sector is constrained by policy uncertainty, particularly around the mining charter, which is expected to be finalised by the end of 2018. This has hampered investment.

The charter is still subject to public consultations.

“A combination of factors including declining productivity and escalating costs have suppressed activity in the mining sector,” said Investec chief economist Annabel Bishop.

The jobs bloodbath at Gold Fields on Tuesday and at Impala Platinum last week will put further strain on the sector and growth will likely stall towards the end of 2018.

Gold Fields is preparing to lay off up to 1,560 people at its lossmaking South Deep mine, while Implats is gearing up for 13,000 job losses within two years.

“There are further difficulties ahead for the sector, as evidenced by news of job cuts in the sector, and the potential for an escalation in US and China trade tensions,” said Muscat.

Commodity prices suffered amid geopolitical concerns and rising trade tensions, which had reinforced investor concerns over global growth, threatening demand, said Bishop.