Recession may become grim reality
Lacklustre data is released
THE SPECTRE of a local recession looms large, following the release of lacklustre mining and manufacturing data yesterday.
These figures come amid sluggish gross domestic product (GDP) data this year and could add to already high unemployment, which would compound difficulties for an already strained consumer.
The negative and marginal growth in two of the economy’s all important sectors comes following recent moves by the International Monetary Fund, the World Bank and the SA Reserve Bank to cut growth forecasts for this year to between 1.4 percent and 1.5 percent.
Finance Minister Nhlanhla Nene also warned that growth forecasts would be cut and he could make the extent of these downward revisions in growth for this year official at the release of the medium-term budget policy statement later this month.
According to Statistics SA data released yesterday, seasonally adjusted mining production decreased by 1.1 percent in August compared with July. This followed a month-onmonth drop of 0.8 percent in July and 2.4 percent in June.
One of the biggest contributors to the fall was the decline in iron ore, which fell 17.1 percent, and a drop in coal of 5.3 percent.
“One has been somewhat concerned for a number of years about the very poor performance of the mining sector, which has lagged the rest of the economy by a considerable margin on average… Unfortunately the trend seems to be persisting,” Econometrix economist Azar Jammine said.
Negative impulse
He said declining mining production was likely to exert a “negative impulse on overall GDP growth for the third quarter”. Jammine said the risk of recession was frequently reflected upon by analysts, particularly given that second quarter GDP growth had declined by 1.3 percent.
He said to add to the uncertainty, the August mining production figures revealed that the quarter-on-quarter seasonally adjusted growth rate for the three-month period was even more negative, with a 3.3 percent drop, though the figure could improve if mining output recovered in September.
“In the short term, it appears very much as though the mining sector will have contributed negatively to GDP in the third quarter. This in- creases the chances of recession, having been recorded in the sense of two successive quarters of negative quarteron-quarter seasonally adjusted growth in GDP,” he said.
“But from a longer-term point of view, the picture relating to mining production and its impact on overall GDP growth is not particularly promising,” he said.
Cees Bruggemans, the chairman of Bruggemans & Associates Consulting Economists, said: “October started with a coal labour strike of uncertain duration, with uncertainty also remaining about gold production, and iron ore output still under pressure. Between them, they could further depress average fourth quarter output, making it a mining recession quarterly hat-trick.”
He said these figures came hard on the heels of electricity output in August, which was sharply down. This all put mining production on course for a recession, which is two successive quarters of declines.
Hugo Pienaar, a senior economist at BER Research, said the negative production figures threw a cloak of uncertainty over the economy’s performance next year.
Manufacturing production decreased by 0.2 percent in August compared with August last year. Six of the ten manufacturing divisions reported negative growth rates over this period. Seasonally adjusted manufacturing production increased by 0.4 percent in August compared with July.