SA mining and manufacturing production surprised in June, increasing above market expectations, an indication that the two sectors will make a positive contribution to SA’s overall GDP growth in the second quarter.
Stats SA data released on Thursday shows mining production bounced back in June, increasing 1.1% from a year ago, rebounding from a downwardly revised 0.7% fall in the prior month, and better than market forecasts of a 0.2% drop.
Output also expanded on a quarterly basis, increasing 1.5% in the second quarter, reflecting continued momentum from 1.4% in the first quarter.
Among the five major mining divisions, output in platinum group metals rebounded strongly, posting 11.1% year-on-year growth after a material contraction of 7.2% in May and an annual average of -10.9% since February 2022.
But despite the positive June numbers, the mining sector remains challenged by load-shedding and logistics constraints, as well as moderating external demand.
FNB senior economist Thanda Sithole said commodity prices have come down relative to last year, weighing on earnings and the mining sector’s contribution to government tax revenue, and will deliver a hit to the commodity price windfall of the last two fiscal years.
According to the Minerals Council SA, mining’s contribution to GDP fell slightly from 7.56% in 2021 to 7.53% in 2022.
The council said this was mainly due to a weak production performance, which showed a 7% decline for mining compared to 2021, while the economy grew 2% over the same period.
Senior economist at Oxford Economics Jee-A van der Linde said the supply side of the economy seems to have stabilised, with both mining and manufacturing likely to be drivers of economic growth again when the next batch of national accounts data is released.
“That said, the numbers mean little in the grand scheme of things,” Van der Linde said. “Load-shedding intensity ramped up in July, with forward-looking data pointing to continued strain within the SA economy.”
The temporary load-shedding respite in June does not change their growth outlook for SA because logistical infrastructure failures will still persist, he said.
“We forecast the SA economy will hardly grow at all in 2023, with real GDP growth of 0.2% pencilled in for this year,” he said.
Van der Linde said this is because total mining production contracted by 7% in 2022, compared with an 11.6% uptick in 2021 and a slump of 10.4% in 2020.
Manufacturing activity also surprised in June, increasing by 5.5% year on year in the month from a downwardly revised 2.4% rise in the previous month and above market estimates of a 3% jump. This marked the third consecutive month of growth in industrial activity and is the strongest since June 2021.
The sector also expanded on a quarterly basis, increasing by 2.3% in the second quarter from 1.4% previously and also contributed positively to quarterly GDP growth.
Van der Linde said the sector’s performance can in part be attributed to less intense daytime load-shedding in June. He said this also suggests the country’s industrial sector is weaning itself off the unreliable electricity provided by embattled power utility Eskom.
Investec economist Lara Hodes said notwithstanding June’s lift, conditions in the manufacturing sector remain subdued, with confidence among players in manufacturing subdued.
Hodes said June’s purchasing manager’s survey (PMI) results show that the business activity subindex remained in negative terrain for a fifth consecutive month, showing that even as electricity supply improved, it continues to impede optimal economic performance.
Hodes said advance indications provided by the July PMI show that the gauge slid further into contractionary territory, which does not bode well for manufacturing activity at the start of the third quarter.
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