SA’s two vital productive sectors punched below their weight in September, boding ill on the outlook for the third quarter GDP.
Manufacturing and mining output both dropped on an annual and monthly basis, partly signalling tepid domestic and external demand amid a mixed global economic picture.
While the frequency and severity of power cuts have eased, concerns are still lingering on China, SA’s biggest trading partner and the proxy of commodity markets. Its post-Covid economic recovery has been weak, weighed down by the property market.
However, the US economy has been a bright spot so far despite the exponential increase in interest rates over the past 18 months.
SA’s manufacturing production fell at a steeper rate than expected in September year on year, weighed down in part by the electricity supply deficit.
Manufacturing output fell 4.3%, far outpacing market estimates for a contraction of 2.4%, Stats SA said in a statement on Thursday. Food and beverages, motor vehicles, parts and accessories, and other transport equipment were the main drags.
“Along with most other sectors of the economy, conditions in the manufacturing sector remain lacklustre,” Investec economist Lara Hodes said in a note, adding the data was consistent with the decline in the headline Absa purchasing managers’ index (PMI) for September and October.
The Absa PMI, compiled by the Bureau for Economic Research (BER), dropped to 45.4 index points in October, the lowest level since July 2021, from 46.2 in September. The PMI has been below the neutral 50-point mark for the sixth consecutive month.
“Indeed, SA’s numerous domestic challenges including electricity supply and logistical constraints continue to impede activity,” Hodes said.
Manufacturing output fell 0.5% month to month after a modest rise in August and a drop of 1.6% in July.
SA’s mining output dropped nearly 2% in September year on year, suggesting a tepid demand for commodities but also lingering bottlenecks on the country’s railway network that holds back miners from delivering goods to the market efficiently.
Mining production fell 1.9% in September, compared with the same period a year ago, Stats SA said in a statement on Thursday. In August, mining production fell 2% year on year.
Diamonds, other metallic minerals and manganese more than offset the positive contribution from the platinum group metals, the agency said.
Mining output dropped a modest 0.3% month on month, after rising 1.2% in August.
While load curtailment has eased in line with improved energy availability factor, the outlook in the mining industry is still blighted by an inefficient rail network that forced major players such as Kumba Iron Ore to stockpile stocks at the mines.
State utility Transnet’s capacity to deliver services is being hampered by vandalism of its infrastructure, as well as the shortage of spare parts for idle locomotive, among other factors.
Meanwhile, demand for commodities was still patchy as reflected in the underlying metal prices.
Mineral sales dropped 20.2% year on year in September, dragged down by coal, gold and PGMs.
“The disappointment in manufacturing production for September overshadows the slightly better-than-expected mining production,” Standard Bank economist Elna Moolman said, adding that the two sets of data confirm that the mining and manufacturing sectors likely contracted in the third quarter.
“This will clearly weigh on third quarter GDP, although weakness in the third quarter has been widely expected following the recoveries in both the first and second quarter of this year.”
She said the release of retail and wholesale data next week will provide further guidance on the third quarter GDP.
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