The focus this week will be on manufacturing and mining production data for January, providing an initial glimpse into first-quarter GDP dynamics.
The GDP numbers released by Stats SA last Tuesday show that the increase in electricity production over the last quarter of 2023 facilitated growth in manufacturing and mining output.
The SA economy grew only 0.1% quarter on quarter, up from a 0.2% contraction in the third quarter but below market expectations of 0.3% growth. For the year, the economy grew 0.6%, proving relatively resilient given severe power outages, logistical constraints and strong cyclical headwinds.
The electricity-intensive mining and manufacturing sectors managed to increase output over the quarter in line with a 45% quarter-on-quarter reduction in load-shedding, adding value of 2.4% and 0.2% to output, respectively.
Stats SA said that in mining, the platinum group metals (PGMs), coal, chromium ore and diamonds were the most significant positive contributors.
In manufacturing, six of the 10 subsectors reported growth. The largest contribution came from other food products, coke, petroleum products and nuclear fuel, as well as paper and paper products.
Nedbank economist Crystal Huntley said mining and manufacturing prospects would continue to depend heavily on how disruptive load-shedding and transport bottlenecks would be in the year ahead.
She said that while Nedbank expected load-shedding to ease somewhat, rail and port issues were expected to continue and potentially worsen. “The operating environment will, therefore, remain broadly unfavourable for producers, undermining output, driving up production costs and eroding profits. Furthermore, the global business cycle will be challenging.”
She said the two industries’ prospects might change because while worldwide demand and international commodity prices were forecast to remain lacklustre in the first half, they were expected to gradually pick up as global disinflation intensified. That would create space for central banks to start easing monetary policies, thereby lifting global confidence and demand towards year end.
However, she warned that significant risk persisted in that economic activity in some of SA’s main trading partners, notably China, Europe and the rest of Africa, could be weaker than the global average. This could “stay subdued for longer given a myriad of specific structural, geopolitical, climatic and cyclical impediments in different countries and regions”, Huntley said.
“As a result, we expect value added by mining and manufacturing to remain weak in calendar 2024.”
Bureau for Economic Research (BER) economist Katrien Smuts said last week’s electricity generation numbers, which showed electricity production fell 1.7% month on month in January as load-shedding intensified from December’s levels, would also have weighed on industrial production in January.
Smuts added that the Absa purchasing managers’ index (PMI) suggested that the manufacturing sector experienced a poor start to the year, meaning it could see another monthly drop.
“Mining production fell by a steep 4.2% month on month in December as iron ore production slumped by 28.6%. This was due to a big miner cutting back output to prevent stocks from running too high due to port congestion. This is unlikely to have changed in January, but another month-on-month drop of that magnitude is unlikely,” she said.
Nedbank senior economist Isaac Matshego said the bank expected a monthly decline in mining production on the back of increased load-shedding and persistent rail inefficiencies.
“On an annual basis, the industry should fork out positive growth given the improvement in electricity shortages relative to January 2023,” Matshego said. “We forecast annual growth in manufacturing production of around 0.5% year on year, a moderation from 0.7% in January.”
He said that while growth would be relatively weak, it would still be positive because of base effects and the sharp improvement in power supply relative to a year ago.
“Over the month we expect a contraction of 0.2%, in line with the drop in the January PMI to below 50 and amid an uptick in load-shedding,” Matshego said.
On Monday, the FNB/BER building confidence index survey results for the first quarter will be published. The index gained nine index points to 43 in the fourth quarter, the highest level in eight years.
FNB chief economist Mamello Matikinca-Ngwenya said overall confidence was spurred by a 24-point increase in the sentiment of architects, while hardware retailers saw their confidence increase by 18 points, though coming from a depressed position.
“While the overall results were reasonably upbeat, the divergence between the residential and nonresidential subsegments remained evident. Although activity for residential building work still held up well, order books deteriorated,” she said.
“Meanwhile, nonresidential builders were optimistic [confidence moved further above 50], partly due to much better overall profitability.”
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