Johannesburg - The latest disappointing mining and manufacturing output figures that were released yesterday added to a bleak outlook and reinforced the view that the South African economy will battle to attain the forecast 2 percent growth in 2015.
Manufacturing production is likely to remain another drag on economic growth in the second quarter, unless there is substantial improvement in June.
On a seasonally adjusted annualised basis, manufacturing output declined by 1.2 percent quarter on quarter in May.
The sector came out much worse than expected, according to data released by Statistics SA on Thursday.
Factory output registered a decline of 1.4 percent from a contraction of 2.1 percent in April.
This was against a market expectation of an expansion of 1 percent.
The growth in mining production also fell sharply in May, with year-on-year growth slowing to 2.7 percent. This was from an upwardly revised 7.9 percent in April, and compared with an expectation of 8.6 percent.
The latest data detracted from the case for an interest rate hike by the SA Reserve Bank’s Monetary Policy Committee when it makes its announcement on July 23.
Unchanged
Kamilla Kaplan, an economist at Investec, said the combination of growth and inflation considerations supported an unchanged bank verdict.
“However, given the Reserve Bank’s hawkish policy communications to date, a 25 basis point hike seems most likely in July,” Kaplan said.
The marginal growth in mining output can be attributed mainly to platinum group metals, which added 8.7 percentage points.
Contractions were registered for iron ore (minus 13.4 percent) and coal (minus 10.3 percent), probably because of softer demand and weaker commodity prices.
Gold production fell by 4.9 percent year on year. The gold sector is facing the threat of strike action, with unions having rejected the latest wage offer from the gold producers.
The decrease in production was led by a 5.8 percent year-on-year fall in basic iron ore and steel production and a 4.6 percent year-on-year drop in petroleum production.
“Transnet also shut down the iron ore export rail line for 10 days for maintenance, which would have affected production,” said FNB industry economist Jason Muscat.
Disappointing
Jeffrey Schultz, an economist at BNP Paribas Cadiz Securities, said the disappointing mining production performance in the past two months continued to point to struggling industrial activity.
“Of course, unavoidable and temporary maintenance-induced production halts are partly to blame here.
“But there is also clear evidence from these numbers that a combination of weak demand, electricity supply cuts and falling global commodity prices, particularly in key export commodities such as iron ore – which has slipped to 2009 lows – are all continuing to weigh on the ability of this industry to keep its head above water, even in the absence of significant industrial action,” he said.
Nedbank economists said the outlook for manufacturing, which accounts for 13 percent of gross domestic product, remained subdued.
“The electricity crisis, rising production costs, low global commodity prices and patchy global and local demand are likely to weigh on production in most manufacturing industries,” they said.
“The sector is likely to record only a moderate growth off a low base in 2015 as a whole.”
Business Report