The under-performance in the mining and manufacturing industries continued to haunt the South African economy to the end of June, cementing views that economic growth will shrink in the second quarter and drag overall 2022 gross domestic product (GDP).
This comes as both mining and manufacturing production fell more than expected in June as industry grappled with intensifying power outages and the weak economic climate.
Industrial production made up of mining, manufacturing and electricity production accounts for 20.5 percent of gross domestic product.
Data from Statistics South Africa (StatsSA) yesterday showed that mining production slumped by 8 percent year-on-year in June following a downwardly revised 7.2 percent decline in May.
This marked the fifth consecutive month of a downturn in mining activity, weighed down by crippling load shedding, higher production costs, and the lingering effects of a three-month strike in the gold sector.
On a quarterly basis, production fell by 3.4 percent in the three months to June compared with the three months to March.
StatsSA’s principal survey statistician, Juan-Pierre Terblanche, said the decline in mining output was led by a slump in the production of gold and coal.
“Gold production was down by 11.7 percent and coal by 5.7 percent. On the upside, the production of copper, nickel, platinum group metals and iron ore quickened in the second quarter,” Terblanche said.
On a monthly basis, production contracted by 1.4 percent following an upwardly revised growth of 1.2 percent in May and a decline of 3.8 percent in April.
The depressed mining output is expected to impact on South Africa’s tax revenue as companies missed out on cashing in on the commodity boom.
Nedbank economist Liandra da Silva said momentum in the mining sector was expected to deteriorate in the coming months on the back of intense domestic and global headwinds.
“The current loss of global growth momentum and expectations for activity to deteriorate further during the year will weigh on demand, ultimately pushing commodity prices lower and thus affecting mining sales,” Da Silva said.
“Furthermore, ongoing supply constraints will likely keep the prices of some commodities elevated. On the production front, power outages remain a ‘thorn in the flesh’ for the sector.”
Meanwhile, manufacturing production also fell more than expected after load shedding was ramped up amid work stoppages at Eskom in June.
StatsSA said factory output shrank by 3.5 percent from a year earlier in June after a downwardly revised 1.8 percent fall in May.
This was worse than market forecasts of a 2.9 percent decline and marked the third consecutive month of contraction in manufacturing activity.
StatsSA’s director of industry statistics, Nicolai Claassen, said production pulled back in the second quarter, decreasing by 5.5 percent on a seasonally adjusted basis, after two consecutive quarters of positive growth.
“Eight of the 10 manufacturing divisions reported a slowdown in activity over this period, mostly led by declines in the production of petroleum, chemical, rubber, plastic products, and food and beverages,” Claassen said.
On a monthly basis, output fell by 1.5 percent after a revised 0.2 percent rise in May.
Investec chief economist Annabel Bishop said South Africa looked like it was on track for growth of 1.9 percent this year, lower than the SA Reserve Bank’s forecast of 2 percent, as other economic indicators - retail and wholesale trade sales - were also showing a drop.
“A large collapse in three sectors of the economy (manufacturing, mining and electricity) will have some negative impact on the other sectors in the economy, including particularly the transport sector, which makes up 8.4 percent of GDP,” Bishop said.
“Consequently, much will depend on the performance of the services sector for the second quarter, but the severe contraction in industrial production will have a noticeable impact, and will also be reflected in the business services industry in part.”
BUSINESS REPORT