South Africa’s economic growth in the first quarter now looks certain to fall into a technical recession as output from key sectors continued to fall in January due to intensified load shedding and logistical challenges.
Persistent, heightened rotational load shedding has continue to remain a key downside risk to the energy-intensive manufacturing sectors of mining and manufacturing,
Statistics South Africa (Stats SA) said yesterday that mining production fell by 1.9% year-on-year in January, following an upwardly revised 3.6% decline in the prior December 2022.
The latest decline was the shallowest in 12 months and was less than forecast compared with market estimates of a 2.7% slump.
This marked the 12th consecutive month of contraction in mining activity, though the softest in the current sequence that began in February last year.
Stats SA’s principal survey statistician, Juan-Pierre Terblanche, said though production was broad-based, with six out of 12 divisions falling, it was mainly dragged lower by the platinum group metals (PGMs) and diamonds.
“PGMs was the largest negative contributor, declining by 15.2% year-on-year. The industry also produced less copper and manganese ore than it did a year ago,” Terblanche said.
“On the upside, four sectors recorded positive results although not enough to lift overall mining growth into positive territory.”
Conversely, coal output grew by 4.1% in January, while production of iron ore, which was afflicted by the subdued global conditions, rose by 12.1% in January as global prospects have brightened somewhat.
On a seasonally adjusted monthly basis, mining production surged by 4.4% in January, quickening from an upwardly revised 1.3% rise in the prior month.
Seasonally adjusted mining production decreased by 0.5% in the three months ended January 2023 compared with the previous three months.
Investec economist Lara Hodes said the mining industry would continue facing headwinds in spite of improving global demand.
“However, notwithstanding the more favourable global scenario, domestic challenges continue to weigh on South Africa’s production and export potential, with logistical and energy supply constraints most pressing,” Hodes said.
“Indeed, electricity generation fell by a further 8% year-on-year in January, according to Stats SA.”
Mining and manufacturing are key primary and secondary sectors in calculating the gross domestic product (GDP).
Their continuing decline could see South Africa’s GDP contracting for the second consecutive quarter by the end of March, and thereby slipping into a technical recession.
Meanwhile, manufacturing production fell by 3.7% from a year earlier in January, following a downwardly revised 4.5% slump in December 2022.
This was the third consecutive month of falling industrial activity, amid persistently high levels of load shedding and failing infrastructure, in particular port inefficiencies.
Stats SA’s director of industry statistics, Nicolai Claassen, said that eight of the 10 manufacturing divisions recorded a decrease in activity, with the petroleum, chemical products, rubber and plastic products the biggest drag on growth.
“The industry also saw a decline in output from six other manufacturing divisions, most notably the communication and professional equipment that recorded a decrease of 11.4%,” Claassen said.
On a seasonally adjusted monthly basis, manufacturing output rose by 1.1% in January, following an upwardly revised 0.5% increase in December 2022.
FNB senior economist Thanda Sithole said, nevertheless, this data print and mining output data published lessened fears of a likely quarterly decline in the first quarter GDP.
Sithole said, at this stage, FNB was forecasting a mild GDP decline for the first quarter, following a worse-than-expected 1.3% quarter-on-quarter decline in the fourth quarter in 2022.
“The outlook for the manufacturing sector remains precarious as hard power shortages persist. The manufacturing sector’s activity was soft last year, contracting by 0.1%,” Sithole said.
“We expect activity to weaken further this year, albeit marginally, as domestic and external demand weakens while hard power shortages and port and rail inefficiencies remain a binding constraint to overall activity.”
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