Economy: mining production upbeat, but retail sales remain muted

Mining production volumes remained upbeat in the fourth quarter, with the November mining production numbers coming in better than expected, which bodes well for gross domestic product in the fourth quarter and the odds of an economic recession diminishing.

However, port congestion and persistent load shedding undermine South Africa’s mining industry, with annual mining production for 2023 down by 0.6% over the year following a contraction of 7.2% in 2022, according to Statistics SA’s data for mining production and sales for November.

Seasonally adjusted mining production increased by 2.1% compared to October after a 2.0% increase in October compared to September. Annual output increased by 6.8% most recently, following the previous month’s 3.6% expansion compared to a year ago.

The November outturn exceeded expectations, and the largest positive contributors to the year-on-year increase were platinum group minerals (PGMs), which increased by 15.2% and contributed 3.9 percentage points; coal, which increased by 10.6% and contributed 2.5 percentage points; and iron ore, which increased by 20.1% and contributed 2.1 percentage points.

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Annual mining production lower in 2023 than in 2022

However, Jee-A van der Linde, senior economist at Oxford Economics Africa, says annual mining production for 2023 remains down 0.6% over the year after contracting by 7.2% in 2022. Seasonally adjusted mining production increased by 2.1% in the three months ending in November compared to the preceding three months, driven by increased coal (+4.6%) and PGMs (+4.6%) output.

“South Africa’s industrial sector experienced a weak third quarter, declining by 1.1% quarter-on-quarter, but things are looking better for the fourth quarter with back-to-back increases in mining production volumes.

“Still, there is a good chance that this may be short-lived, as current industry fundamentals are not conducive to sustaining an expansion in mining production.”

He says port congestion and load shedding have worsened considerably in recent months, with a key coal export line to Richards Bay shut and export activity mostly suspended after two coal freight trains collided in mid-January.

“This is a major setback for the economy in general and industry in particular as government and businesses scramble to arrest Transnet’s decline. Our base case remains for the South African economy to avoid a recession in the fourth quarter of 2023, but growth should stay weak, and we estimate that the economy will grow by a meagre 0.5% in 2023.”

The economy enters 2024 with little economic momentum, and real GDP growth is expected to pick up only modestly to reach 0.7% this year. Supply-side constraints will continue to undermine growth in 2024, he says.

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Retail trade sales muted in November

Meanwhile, diminished disposable incomes due to inflated prices and high interest rates meant that South African consumers kept spending to a minimum in November. According to Statistics SA, retail sales increased by 0.4% compared to October but decreased by 0.9% compared to a year ago, indicating that consumers did not overspend on Black Friday, which usually signals the start of festive buying.

Seasonally adjusted retail trade sales increased by 0.4% compared to October, after a 1.4% month-on-month decrease in October. On an annual basis, sales were down by 0.9% compared to 2.3% year-on-year in October.

The biggest negative contributors to the annual decrease were the subsectors for hardware, paint, and glass that decreased by 5.3% and contributed -0.4 percentage points, and textiles, clothing, footwear, and leather goods that decreased by 2.0% and contributed -0.4 percentage points.

Seasonally adjusted retail trade sales dropped by 0.5% in the three months ending in November compared to the preceding three months, indicating consumers continue to feel the pressures of high prices and tight monetary policy.

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Black Friday helped numbers in November

However, glimpses of Black Friday shopping were apparent in the November numbers, with household furniture and appliances up by 3.1% compared to October, together with all other retailers (+5.6% month-on-month) and general dealers (+1.8% month-on-month). However, buying activity was subdued overall.

Van der Linde says the November retail data shows that consumer spending remained muted in the fourth quarter but is not conclusive enough about the sector’s contribution to overall GDP.

“In addition, the latest numbers align with the trend of choppy economic data we have seen throughout 2023, indicative of an economy simply lurching along. GDP in the third quarter remains little changed from pre-pandemic levels in the first quarter of 2020, indicating that the South African economy has not gone anywhere in the last three years and that is not expected to change in the near term.”

He says South Africa enters 2024 with hardly any economic momentum, and real GDP growth is expected to pick up only modestly to reach 0.7% this year. “Supply-side constraints will continue to undermine growth in the first half of 2024, with the peak impact of tighter monetary policy also likely to still weigh on household pockets during this time.