Mining and manufacturing data gives hope
JOHANNESBURG - June's mining and manufacturing output data gave hope that the economy rebounded in the second quarter following a fall sharp gross domestic product (GDP) in the first quarter of the year.
Data from Statistics South Africa on Thursday showed that Mining production shrank 4.2 percent from a year ago in June, following a 1.5 percent decrease in May.
However, on a month-on-month basis mining production rose 3.3 percent in June.
Manufacturing production declined 3.2 percent year-on-year in June from 0.4 percent growth in May.
Investec economist Lara Hodes said the mining and quarrying sector would make a positive contribution to the quarter’s GDP outcome
"On a quarter on quarter seasonally adjusted basis however, (which is the measure used to calculate GDP) the mining sector rose, by 14.6 percent in the second quarter of the year," Hodes said.
The mining and manufacturing sectors both contributed negatively to first quarter’s shock 3.2 percent plunge in GDP.
Capital Economics economist John Ashbourne said June's activity pointed to a recovery in the second quarter despite manufacturing's poor performance in the month.
"Taken together, the available figures for June point to a reasonable recovery. Output seems to be rising across the economy, even if production remains below recent peaks in all of the key sectors," Ashbourne said.
"We’ll know more when retail sales figures for June are released on 14th August, but for now we think that the economy probably expanded by 1.5-2 percent quarter-on-quarter at seasonally adjusted annual rate in second quarter. Given the recent weakness of the rand, the return to potential growth raises the risks that policymakers will leave their key rate on hold in September."
The rand endured a torrid week, breaching the R15 mark against the dollar for the first time in two months as the trade feud between the US and China hurt emerging markets and their currencies.
Lukman Otunuga, a senior research analyst at FXTM, said the rand was an easy target for anxious investors this week thanks to trade war fears and rising concerns over a possible sovereign rating downgrade by Moody's.
"A depreciating rand will increase the costs of imports and stimulate inflationary pressures, ultimately complicating the SA Reserve Bank’s effort to cut rates," Otunuga said.
In the first quarter of this year manufacturing declined 8.8 percent, while the key agriculture sector fell 13.2 percent and trade eased 3.6 percent. Mining and quarrying industry dropped by 10.8 percent in the first three months of the year.
Statistics South Africa will next week release retail sales data for June, completing second quarter activity data.
FNB chief economist Mamello Matikinca-Ngwenya said she anticipated another relatively steady reading in the June retail sales print, primarily supported by general dealer purchases.
"Deep discounting, interest-free lay-by sales, ands muted consumer inflation pass-through are among the main factors informing the expected volume growth," Matikinca-Ngwenya said.