Mining crisis sends GDP into decline

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The latest GDP figures, released yesterday, show mining output slumped 24.7 percent in the first quarter, providing the biggest brake on the economy, which contracted 0.6 percent. Photo: Simphiwe Mbokazi

Johannesburg - South Africa’s economy contracted in the first quarter for the first time since the 2009 recession as mining output plunged the most in 47 years during the longest industry strike in the nation’s history.

Gross domestic product (GDP) fell 0.6 percent in the first quarter compared with the final three months of last year, when it expanded 3.8 percent, Statistics SA said yesterday. The quarter-on-quarter figures are seasonally adjusted and multiplied by four to show an annual trend. Mining slumped 24.7 percent, the biggest quarterly drop since the second quarter of 1967.

An 18-week wage strike by more than 70 000 workers has shut mines on the platinum belt. Mining accounts for two-thirds of the nation’s exports.

“It’s a very disappointing result,” Elna Moolman, an economist at Macquarie Group, said. “Second-quarter mining production is probably going to be very weak. The protracted strikes and lack of government intervention will weigh on business sentiment.”

The strike also hurt output in manufacturing, which makes up about 15 percent of the economy and fell 4.4 percent in the quarter to March.

Industries such as petroleum, basic chemicals and iron ore were affected, Stats SA said.

“The mining strike had the biggest impact on the overall decline in GDP in the first quarter and it also impacted manufacturing because if you are not producing anything, there’s not much to manufacture,” Stats SA head Pali Lehohla said.

The Association of Mineworkers and Construction Union wants R12 500 a month. The producers say they cannot afford this.

Sluggish economic growth prompted the Reserve Bank to keep the repo rate unchanged at 5.5 percent for a second consecutive meeting last week, even as inflation exceeded the bank’s 6 percent upper target.

David Faulkner, a South Africa economist at HSBC, said: “Slow growth, alongside rising inflation, elevated unemployment and potentially widening current account and budget deficits, are among a set of weak dynamics that illustrate South Africa’s macro vulnerability. We expect South Africa’s economy will grow 1.8 percent in 2014.”

New Mineral Resources Minister Ngoako Ramatlhodi said on Monday that he wanted to “find a way of facilitating an agreement” to end the strike. The “current system of labour relations has collapsed”, he said.

Nigeria surpassed South Africa as the largest economy on the continent after Africa’s biggest oil producer revised its data to take account of new spending patterns.

Jana van Deventer, an economist at ETM Analytics, said the weakness in South Africa’s economy lay in the broad industrial sector, which contributed to supply side constraints. “We also saw softening in consumption in retail and wholesale trading numbers where demand deteriorated, raising fresh concerns on fiscal outlets,” she said.

Another problem that compounded the GDP contraction was the government’s tax base, which was relatively small. The government needed to manage spending closely to prevent fiscal slippage.

Economics consultancy Econometrix said that while implementation of the National Development Plan could go some way towards improving the longer-term economic growth prospects, there were questions about whether the make-up of the new cabinet was geared towards such implementation.

It said in the short term, the weak economic growth would militate against the Reserve Bank raising interest rates.

“The latest figures show a decline in the growth of employee compensation to 7.2 percent in the first quarter, from an average of 8.6 percent last year and 7.6 percent in the first quarter of last year, suggesting the employment situation is making it difficult for workers to receive substantial raises.” – Additional reporting by Bloomberg


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