Gut punch for South Africa’s economy
Two of South Africa’s most important sectors – mining and manufacturing – are facing severe headwinds, spelling bad news for South Africa’s Q3 GDP figures.
According to Stats SA, mining output (not seasonally adjusted) declined by 2.5% y/y in August, worse than the consensus prediction of a 2.0% y/y decline.
This follows a severe revised 4.4% decline (previously -3.6% y/y) in July.
“Seasonally adjusted output, critical for the calculation of quarterly GDP growth, expanded by 0.8% m/m, reflecting a partial rebound from the 1.7% monthly decline in the previous month,” Thanda Sithole, FNB Senior Economist, said.
“However, in the three months to August, output shrank by 2.0%, signalling a possible negative contribution to GDP growth from the mining sector. This is consistent with our view that the economy may have failed to sustain the 0.6% quarterly GDP growth recorded in Q2 2023.”
From January to August (YTD), mining output was down 1.8% y/y, highlighting the poor growth in many commodities, especially coal, iron ore and platinum group metals (PGMs).
However, looking more positively, output growth was more robust in the gold division at 13.2% y/y YTD.
“Overall, the mining sector remains challenged by unreliable energy supply and logistics constraints, as well as moderating external demand, with growth challenges in China and Europe boding ill for the export of critical commodities,” Sithole said.
“World merchandise trade has underperformed YTD, and global institutions have subsequently lowered their trade outlook, citing weak global demand and rising trade barriers.”
Manufacturing pain
Unfortunately for the economy, manufacturing output was weak in the third quarter.
Total manufacturing output dropped from growth of 2.2% y/y (previously 2.3% y/y) in July to 1.6% y/y in August – below the consensus of 2.2 y/y growth.
Although seasonally adjusted output grew by 0.5% m/m, it could not reverse the 1.7% m/m decline in July.
“The monthly rebound, though partial, is consistent with the PMI business activity, which recovered to 50 index points during the reference month from 38.1 in July,” Sithole said.
“Nevertheless, the business activity relapsed in September to 41.9, signalling a possible monthly decline in manufacturing output. In the three months to August, output shrank by 0.4%, consistent with our view of a quarterly GDP growth moderation in the third quarter.“
That said, manufacturing output was still on track to hit growth in 2023, expanding to a 0.5% YTD increase from a decline of 0.3% in 2022, despite heightened load shedding costs and weak demand.
The automotive industry has been the best performer in the sector, with output increasing by 5.7% YTD.
“Although the latest PMI reading points to weaker activity at the end of the third quarter, manufacturers were optimistic about near-term operating business conditions,” Sithole said.
“Beyond this year, lower levels of load shedding and a modest recovery in demand should underpin growth in the sector. We are, however, still concerned about the logistics challenges, which, combined with load-shedding, have been a binding constraint on economic activity.
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