Economy punches below its weight
Mining output data contracts the most since December 2016
ECONOMIC indicators released yesterday by Statistics South Africa showed an economy punching below its weight with September’s mining output data contracting the most since December 2016 and manufacturing production having decreased 1.6 percent year-on-year in the same month.
Mining production fell 0.9 percent on a yearly basis in September, dragged down by a decline in the output in iron ore, which came in 7.5 percent weaker compared to a 9 percent increase in August. Diamond production tanked 7.1 percent in September, while platinum-group metals production came in 8.3 percent weaker in the period. Most sub-sectors performed poorly, with growth in the production of metal products – one of the few sources of growth this year – more than halving in September.
Jason Muscat, a senior economic analyst at FNB, yesterday said that while the mining sector output surprisingly contracted in September, indications were that it would bounce back in the fourth quarter.
“Despite the disappointing performance, the sector will still provide a good boost to third quarter’s gross domestic product (GDP), having expanded 2 percent quarter-on-quarter in the three months to September. On the basis of today’s print, we are pencilling in a 4 percent year-on-year expansion in the quarter, which should add approximately 0.3 percentage points to overall GDP,” Muscat said.
Manufacturing production also came under strain in September with the 1.6 percent decline worse than the market expectation gain of a 0.6 percent. Output in the sector fell for motor vehicles and transport equipment, which tanked 4 percent compared to a 0.7 percent gain in August, and glass and non-metallic mineral products, which declined 5.4 percent in September, compared to 1.9 percent in the previous month.
The economic effect of falling output was, however, cushioned by higher commodity prices; mining sales rose by 18.2 percent year-on-year in the period under review.
Disappointing
John Ashbourne, an Africa economist at Capital Economics, said that while September’s figures were very disappointing, data for the third quarter as a whole suggested that the economy probably held up better than most expected.
“At the quarter-on-quarter rate that aligns with the official GDP growth figure, output in both the mining and the manufacturing sectors actually exceeded that recorded in the second quarter. Overall growth will depend heavily on the performance of the retail sector – for which data will be released next week,” Ashbourne said.
The International Monetary Fund (IMF), following the conclusion of its 10-day mission to South Africa to discuss recent economic developments, on Wednesday said mining needed to be supported by other sectors to grow the ailing economy.
Ana Lucía Coronel, a representative of the IMF’s mission, said despite South Africa’s institutional strength and favourable global conditions, increasing domestic political uncertainty and stalled reforms point to a challenging economic outlook.
“Some sectors, including agriculture and mining, are generating growth, but other key activities have stagnated or declined, as investment decisions are being postponed or abandoned,” Coronel said.