Data points to risk of recession

DISAPPOINTING manufacturing production figures for June yesterday raised a red flag that the economy might fall into recession, with analysts saying mining data next week will give guidance to the rocky road ahead.

Data from Statistics South Africa showed that manufacturing output advanced 0.7 percent year-on-year in June of slowing from a downwardly revised 2 percent rise in the previous month – the smallest gain in industrial output in June since February.

June’s output print was also below market consensus of a 1.7 percent increase.

The slowdown in the industry was broad-based, with growth ebbing across almost all key manufacturing sub-sectors.

The sharpest decline was in the automotive sector, which fell by 3.3 percent year-on-year.

The chief economist at Investec, Annabel Bishop, said the risk was that a contraction in industrial production in the second quarter would contribute to another negative quarter in the gross domestic product (GDP) and so risk an economic recession.

“For industrial production figures to avoid a recession in the second quarter and thereby not pull GDP growth down, mining production would need to record growth of at least 4 percent month-on-month, seasonally adjusted for June,” Bishop said.

Shrunk

The country’s economy shrunk to its worst in nine years in the first quarter after contracting 2.2 percent in the period.

John Ashbourne, an Africa economist at Capital Economics, said that the sector performed better in the second quarter as a whole than it did in the first quarter.

“We will have a better idea of how the economy fared when retail and mining figures for June are released next week. But we expect that the economy probably just returned to growth in the last quarter, narrowly dodging another technical recession,” Ashbourne said.

FNB senior economic analyst Jason Muscat said that the weak performance of the manufacturing sector reflected poor domestic demand and subdued export volume growth.

“Growing trade friction is more likely to impact South Africa’s commodity exports rather than manufactured exports, but concern around the wider implications of rising tariffs may have been a contributing factor to domestic output slowing,” Muscat said.