Johannesburg - South Africa’s manufacturing output rose more than expected in April, while mining remained an albatross around the neck of the economy.
Industrial output rose by 2.9 percent year on year in April after falling by a revised 2.4 percent in March, Statistics SA said yesterday.
However, April reflected a deceleration of contraction in mining production, which came in at an annualised contraction of 6.9 percent from a revised record fall of 17.8 percent in the prior month. On a month-on-month basis, factory production was up 0.8 percent, and rose 1.1 percent in the three months to April compared with the previous three months.
“Today’s figures suggest that the economy gained a bit of momentum at the beginning of the second quarter. The mining and manufacturing sectors will play a key role in determining whether South Africa avoids a second quarter of contraction, and thus a technical recession,” John Ashbourne, an Africa economist at Capital Economics, said.
Nedbank said underlying conditions in the manufacturing sector were expected to remain patchy and subdued during the remainder of the year.
“Some of the major export-orientated industries continue to face significant obstacles due to low international commodity prices, considerable global excess capacity and rising domestic production costs. The weaker rand alone is unlikely to compensate fully for these pressures,” Nedbank said.
It said although April’s manufacturing figures were encouraging, there was still no evidence of a sustainable recovery or any sustainable upward momentum in the industry.
“Poor economic data, coupled with the delay in US interest rate hikes and the stay of execution by the rating agencies reduce the chances of further monetary policy tightening in the short term. However, much will depend on the rand as the year progresses. We anticipate one more hike of 25 basis points in the second half of the year,” Nedbank said.
Mining contributes about 8 percent to gross domestic data. South Africa is a top producer of platinum, gold and iron ore among other minerals.
The rate of contraction in mining production decelerated to 6.9 percent year on year in April from 17.8 percent in the prior month.
BNP Paribas Securities economist Jeffrey Schultz said the mining sector was in a recession, with production growth already down 10 percent year on year in the first four months of 2016. “The outlook… remains unsettling, given a subdued commodity price outlook, wage negotiations in the platinum sector… and depressed confidence and investment in the sector as policy uncertainty continues to weigh,” he said.
Kamilla Kaplan, an economist at Investec, said the World Bank recently noted that “commodity prices recovered from the January lows but remain low on the back of abundant supply and weak demand”. She said this, coupled with increased operating costs, would continue to put pressure on producers’ margins.
* Additional reporting by Reuters
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