A 19% crash in gold production, which dragged down overall mining output, would not be enough to prevent SA emerging from its first recession in a decade, economists said.
The drop in output by gold producers in September was the biggest in almost four years, highlighting the woes of an industry that was once the mainstay of SA’s economy and has in recent years been beset by the cost of operating some of the world’s deepest mines amid an uncertain policy environment.
Mining, which made a positive contribution to GDP in the second quarter, declined 2.2% in the three months to September, data from Statistics SA on Thursday showed.
The 1.7% growth in manufacturing, together with retail data to be released next week, will probably be enough to ensure that the economy overall limps into a positive reading in the third quarter, to the relief of the government, which has been keen to portray the recession in the first half as technical and temporary.
“Most recent statistics suggest that the economy probably returned to growth off a low base in the third quarter, but there are no compelling signs of significant underlying upward momentum yet,” said Nedbank economist Busisiwe Radebe.
SA’s economy slumped into a recession in the first half, dashing hopes of a quick recovery following Cyril Ramaphosa’s elevation to the presidency in February.
That dire performance prompted the Treasury and the SA Reserve Bank to slash their growth forecasts for the year to just 0.7%, while the unemployment rate jumped to 27.5% in the third quarter.
As the 2019 election looms, Ramaphosa, who narrowly won the ANC presidency in December, needs to show tangible results in his efforts to lift the economy and make a dent in joblessness. The president recently hosted jobs and investment summits and announced a R50bn economic stimulus plan.
Data from the retail sector expected next week will paint a fuller picture of the state of the economy and, barring a big surprise to the downside, should cement confidence that the economy is growing again.
“By our estimates, retail sales will have to have fallen quite considerably for the economy to contract for the third consecutive quarter,” said Capital Economics economist Gabriella Dickens Mining contributed 8% to SA’s GDP in 2017, while manufacturing accounted for 13%, making it the fourth-biggest sector after financial services, government and trade.
Concern about the effect of US import tariffs on steel and aluminium, high electricity prices, hefty wage demands and labour protests would weigh on the mining sector in coming months, said NKC economist Elize Kruger.
The dip in gold output was probably a result of higher costs and tighter adherence to safety regulations, particularly after the poor start to the year for SA’s largest gold producer, SibanyeStillwater, said the Minerals Council of SA chief economist, Henk Langenhoven. Gold mines accounted for more 50% of the 69 fatalities in mines in 2018 so far, Bloomberg reported.
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