Weekly economic wrap: higher unemployment, contracting mining production

On the economic front, the past week saw unemployment increasing even more in South Africa, while mining production is set to contract and sales by retailers and wholesalers, fortunately, improved on a quarterly basis, although the consumer remains under pressure.

Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), says the latest high-frequency data confirms that the economy is unlikely to have slipped into a technical recession in the second quarter after the unexpected contraction in the previous quarter, although quarterly GDP growth is set to remain subdued despite the absence of load shedding.

“Our survey suggests that some ‘wait-and-see’ behaviour before and after the national election held back production and demand in the second quarter and therefore growth could turn decidedly more positive in the third quarter, with the upturn in the July Absa PMI an encouraging start.”

The Rand briefly dipped below R18/$ on Thursday and IJssel de Schepper says the better performance of the Rand in recent days was largely driven by US interest rate expectations and a renewed appetite for somewhat riskier assets.

“Also positive for the global inflation outlook was that the Brent crude oil price edged below $80/barrel in recent days. Locally, product price dynamics are even more favourable, with the petrol and diesel prices set for a further decline next month.”

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Slumping mining production

Nomvelo Moima, trainee economist at the BER, says mining production slumped by 3.5% after an upwardly revised 1.3% expansion in May. The decline was primarily driven by gold (down 12.6%) and platinum-group minerals (down 5.8%).

“Mining and manufacturing are arguably of the most electricity-intensive sectors of the economy. Despite the stable electricity supply through the second quarter and bouncing back in April, these two sectors struggled in May and June. Although the poor mining outcome will weigh on real GDP growth, April’s solid bounce in factory output outweighed the declines in May and June.”

Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say the contraction in mining production partially clouds their expectation of a GDP rebound in the second quarter after the unexpected decline in the first quarter.

“However, given the smaller contribution of the mining sector to GDP compared to the manufacturing sector, our outlook remains intact at this stage,” they said.

Referring to the Quarterly Labour Force Survey that revealed a decline in employment during 2Q24 by 92 416, completely reversing the 21 555 jobs gained in the first quarter, they noted that while seasonal variations may obscure the underlying movements in the data, year-on-year comparisons provide clearer insights into labour market developments.

“Compared to 2Q23, employment increased by 306 140, reflecting 2.6% year-to-date growth from January to June, compared to the same period last year.”

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Stronger Rand was good news this week

Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, say the stronger Rand was boosted by a weaker dollar on growing confidence that the US Federal Reserve will cut rates at its September meeting after evidence of US disinflation.

“The local unit shrugged off the lacklustre local mining and unemployment data released earlier in the week. The rand strengthened even further on Friday morning, trading at R17.96/$.”

They say the outlook for the job market remains uncertain. “Economic conditions have been improving since the start of the year. Some structural constraints have eased somewhat, with reduced load shedding and marginal gains in logistics. Global demand has also increased slightly.

“Given these positive outcomes and hopes that the government of national unity will accelerate structural reforms, business confidence improved in the second quarter. This will support activity and possibly sustain employment growth in energy intensive industries and exporters in the coming months.”

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Job creation to remain weak as unemployment grew

However, they say employment by services could remain stagnant as restrictive monetary policy continues to weigh on domestic demand, hurting confidence, consumer spending and fixed investment in the short term.

“Moreover, some producers might continue to focus on restoring their profit margins, which were depleted by severe operating disruptions and surging costs last year. At the same time, public sector employment will remain restricted by government caps on staff numbers to support necessary fiscal consolidation.

“Consequently, job creation will remain weak in 2024, with employment drifting sideways. A more meaningful recovery is likely to occur next year as inflation dips towards 4.5% and the Reserve Bank reduces interest rates, creating space for faster growth in domestic demand and job creation.”