South Africa’s growth prospects have been dimmed further as the output of both the mining and manufacturing industries - two of key sectors in South Africa’s gross domestic product (GDP) - contracted significantly in 2022.
Statistics South Africa (StatsSA) yesterday said that mining production fell by 3.5% year-on-year in December 2022 following an upwardly revised 9.2% decline in November.
According to StatsSA, December marked the 11th consecutive monthly output decline in the sector, leading to a total annual contraction of 7.2% in 2022 compared to the previous year.
The export of bulk minerals along with other key commodities has been experiencing a volatile period due to elevated levels of load shedding and logistical challenges.
According to the Minerals Council South Africa, insufficient rail capacity and inefficiencies will continue to affect iron ore exports in the short-to medium-term.
The 2022 mining print followed 11.6% growth in 2021 and a 10.4% contraction in 2020.
StatsSA’s principal survey statistician, Juan-Pierre Terblanche, said mining output in 2022 was dragged mainly by platinum group metals (PGMs), iron ore and gold.
In contrast, coal output increased by 8.4% year-on-year, rebounding from a 2.3% decline in November and driven by rising demand in Europe.
“Platinum group metals was the largest negative contributor, declining by 12.2% in a year. Gold production was down by 15.4% and iron ore 12.9%,” Terblanche said.
“Nickel, copper, coal, diamonds and manganese ore also registered a decline in output.”
On a seasonally adjusted monthly basis, mining production rose by 1.2% in December compared to November, marking the first increase after four consecutive months of drops.
Overall, output contracted by 3.4% quarter-on-quarter in the final three months of last year, following growth of 1.7% in the third quarter.
FNB senior economist Thanda Sithole said this weakness underscored their view of a quarterly decline in real GDP growth in the fourth quarter following stronger-than-expected 1.6% growth in the third quarter.
Sithole said they expected aggregate mining output to decline further this year, although the extent of the decline was likely to be slower.
“While slightly improved global growth prospects and China’s recovery could somewhat support commodity prices and, to some extent, earnings, mining production and export volumes will likely be severely impacted by hard electricity shortages as well as port and rail inefficiencies,” Sithole said.
“However, industries that have put measures in place, such as electricity self-generation to cushion the impact of load shedding, could perform modestly better.”
Growth in South Africa has already been forecast to moderate at a paltry 0.3% in 2023 as load shedding and other structural impediments could shave off as much as 2 percentage points from the economy.
Meanwhile, manufacturing production fell more than expected, slumping by 4.7% in December from a year ago following a downwardly revised contraction of 1.8% in November.
The decline in December’s output was worse than market forecasts of a 3.6% y/y decline, and was the second consecutive month of falling industrial activity.
As a result, StatsSA said manufacturing output decreased by 0.3% in 2022, compared with a 6.4% increase recorded in 2021, dragged lower mainly by petroleum and chemicals and wood, paper and publishing.
This is a worrying sign that the extensive rolling blackouts are dimming a sector that is power-intensive as data from StatsSA showed that electricity production and consumption fell by 8.3% and 7.6%, respectively, in December.
Investec economist Lara Hodes said though the recent Purchasing Managers Index readings remained in expansionary territory, they were unlikely to be underpinned by domestic demand conditions and rather by expectations of a more favourable global economic environment than was previously envisioned.
“The country’s electricity supply crisis continues to weigh heavily on the energy intensive (sectors) and remains a key downside risk to the country’s growth potential,” Hodes said.
“Persistent, heightened rotational load shedding continues to remain a key downside risk to the energy intensive manufacturing sector.”
BUSINESS REPORT