Ethel Hazelhurst
The mining sector was a disaster area in the first quarter of the year, contracting nearly 17 percent. This abysmal performance dragged growth in gross domestic product (GDP) down to 2.7 percent from 3.5 percent in the previous quarter, according to Statistics SA.
The figures, released yesterday, are quarterly changes, adjusted for inflation and seasonal factors and multiplied by four to show an annual trend.
The news came against a gloomy global backdrop. Reuters reported yesterday that “manufacturing slumped in both China and the euro zone in May, Britain is in recession, Brazil is stagnating and India’s growth is faltering”.
South Africa’s main export markets are Europe, the epicentre of the problems, and China, where growth is easing. And the domestic economy will suffer collateral damage.
Nedbank’s economic unit warned yesterday that Europe’s debt woes were threatening to derail the global recovery, undermining local exports.
“The agriculture, mining and manufacturing sectors will therefore remain under pressure, while the services sector will probably continue to buoy the economy.
“However, if recession in Europe results in another round of capital expenditure cutbacks and significant retrenchments, domestic spending will also be hurt and the growth outcome will be much weaker than currently anticipated.”
Azar Jammine, the chief economist at Econometrix, attributed the poor first-quarter performance in mining to safety stoppages, strikes and a shortage of electricity. “Eskom has been encouraging mines to keep production down so as to use less electricity.”
He predicted the problems would continue, but that the situation would probably not get worse, which implies no further contraction in mining in the second quarter.
Jammine said mining production figures from Stats SA, released earlier this month, had pointed the way to lower GDP growth in the first quarter.
Confirmation came also from Impala Platinum, which was hit by a six-week strike. The company reported that production of refined platinum fell 46 percent in the first quarter.
Mining was the only industry significantly in negative territory, while the electricity sector shrank 0.1 percent.
These sectors countered promising growth of 7.7 percent in manufacturing, 4.1 percent in finance, real estate and business services, 3.8 percent in construction and 3.4 percent in agriculture.
Growth in the sector which includes trade and hospitality slowed to 3 percent from 5.2 percent.
Kevin Lings, the chief economist at Stanlib, said the decline in manufacturing during March was “clearly insufficient to offset stronger manufacturing growth in both January and February”.
Although lower than in the previous quarter, the GDP growth figure was above the 2.3 percent consensus forecast by economists polled by both I-Net and Bloomberg, and the 2.4 percent estimate of economists surveyed by Reuters.
Henry Flint, the head of research at Thebe Stockbroking, said: “The resilience of the domestic economy suggests monetary policy conditions are appropriate to facilitate an economic recovery.
“Unless some unforeseen event hijacks the current growth path we believe that interest rates will remain unchanged this year and next.”
Annabel Bishop, Investec’s group economist, said the GDP outcome did not change her view that growth would average close to 2.8 percent this year. “The outcome is not poor enough to argue for an interest rate cut, but nor does it support any need for an interest rate hike. It continues to look likely that hikes may only begin next year.”
Nedbank was less optimistic and predicted the economy would grow “by a moderate 2 percent this year” and warned “the outlook is becoming increasingly murky”.