SA’s mining and manufacturing output contracted in January on an annualised basis, but the degree of contraction in both sectors was better than market expectations.
The readings also improved when measured on a month-to-month basis, raising hopes that the country can escape a technical recession — defined as two successive quarters of economic contraction.
However, while economists say it is still too soon to draw conclusions on how the first-quarter GDP could look, they warn that endless load-shedding poses a downside risk to the economic outlook.
“The outlook for now looks weak and unlikely to improve unless Eskom reduces its load-shedding intensity, Transnet improves performance and commodity prices rise,” said George Glynos, head of research at ETM Analytics, in reacting to the mining production figures.
“At the moment we have a [US] banking crisis and the real risk of widespread recessionary conditions later this year,” he said.
Mining production fell 1.9% in January compared with that of the matching period a year earlier, as rolling power blackouts continued to weigh on the industry. However, this was better than the Bloomberg consensus expectation of a 2.8% drop.
Platinum group metals (PGMs) and diamonds were the main drags on overall output, Stats SA said in a statement on Tuesday, adding that it marked the 12th month running of year-on-year reduction.
PGMs fell 15.2% and diamonds 15.5%.
Energy-intensive users such as miners have an arrangement with Eskom to reduce electricity usage by load curtailment.
Iron ore output rose 12% and coal 4% over the same period.
Month on month, mining production rose 4.4% in January compared with December, when output was up 1.3%.
“Although it is too early to tell, the positive outcome in monthly output somewhat lessens fears of a likely quarterly decline in [first quarter] GDP,” FNB economist Thanda Sithole said in a note.
“However, conditions remain precarious and we will closely monitor the rest of the incoming monthly indicators this week to get a partial picture of how the economy is faring in the current quarter.”
The mining industry, arguably the backbone of the SA economy, has also been grappling with rail capacity constraints to move its commodities from miners to ports, where they are exported to countries as far afield as China and India.
Meanwhile, the country’s manufacturing production was 3.7% lower in January compared with that of the previous January.
Petroleum and chemical products, as well as motor vehicles and parts, were the main drags on overall output, along with basic iron and steel and nonferrous metal products.
Manufacturing output, like mining, is most sensitive to load-shedding, now a daily occurrence, and accounts for about 14% of GDP.
On a month on month basis, seasonally adjusted manufacturing production rose 1.1% in January 2023 compared with December's.
Investec economist Lara Hodes expects energy supply and logistical bottlenecks to impede optimal manufacturing production in coming months.
“One faint ray of hope is the liberalisation of the network industries that would allow the private sector to play a larger and more influential role in electricity production. But that will take years to complete, and these same network industries are struggling at the moment.”
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