Mining in SA has averted recession
Data from Statistics South Africa yesterday showed that the country’s mining output increased 2.8 percent year-on-year in June of 2018, following a 1.8 percent fall in the previous month - comfortably above market expectations of a 0.5 percent gain.
Overall, mining output advanced 0.8 percent quarter on quarter in the second quarter staving off fears that the economy could sink into recession, following a 2.2 percent contraction in the first quarter after manufacturing failed to inspire.
Jason Muscat, FNB senior economic analyst said the mining industry, however, remained in a critical state. “There are further difficulties ahead for the sector, as evidenced by the recent news of job cuts, and the potential for an escalation in US/China trade tensions,” Muscat said.
“The latest data suggests that mining will add about 0.4 percentage points to second-quarter gross domestic product (GDP), and will assist in averting a recession, but we caution that there is high forecast risk given revisions expected to first quarter data.”
The gold mining sector, however, extended its losses and plunged 19.2 percent on a yearly basis in June, following an equally significant fall of 14.1 percent in May.
The sector has been bleeding jobs in the past two years.
In the first quarter, mining production contracted 9.9 percent, extending a 4.4 percent drop in the fourth quarter, mainly due to lower production of gold, platinum group metals and iron ore.
However, platinum rebounded in the second quarter, extending its gains in June to 28.2 percent from 10.1 percent in May.
Manufacturing decreased 6.4 percent, the biggest drop since the second quarter of 2015, and reversing from a 4.3 percent gain in the last quarter.
Gerrit van Rooyen, an analyst at NKC African Economics, said the recent depreciation of the rand exchange rate could provide some support for the sector in the next quarter.
“Ongoing uncertainty relating to government policy, concerns regarding US import tariffs on the steel and aluminium sectors, high electricity prices and hefty wage demands will continue to take a toll on the mining sector in coming months,” Van Rooyen said.
The country will now await June retail sales today to give an indication of how the economy fared in the second quarter.
The market consensus is that a 1.9percent gain on a yearly basis with month-to-month is expected to inch up 0.3percent.
“With retail sales data, another key contributor for GDP, due out tomorrow (today), markets will get a closer steer on whether SA’s economy avoided recession,” the chief economist at Investec, Annabel Bishop, said. “We continue to expect weak, but positive GDP growth in the second quarter, and so no technical recession.”