Manufacturing and mining production bounce back

Manufacturing and mining production bounced back in June, but is unlikely to make a major difference to consumers.

Improved manufacturing production numbers pushed the growth rate for the second quarter up by 2.3%.

Less intense load shedding helped, but manufacturers are also seemingly becoming progressively resilient to the effects of power outages, as companies reduce their energy dependence on embattled Eskom, economic research group, Oxford Economics Africa, said

Manufacturing is likely to make a positive contribution to South Africa’s overall real gross domestic product (GDP) growth in the second quarter.

Seasonally adjusted manufacturing production increased by 1.2%, compared to May when a 1.3% decline compared to April was recorded. Favourable base effects meant annual output was up 5.5% compared to a year ago.

The largest positive contributors to the annual increase were motor vehicles, parts and accessories, and other transport equipment, which increased by 9.1% and contributed 1.8 percentage points; basic iron and steel, non-ferrous metal products, metal products and machinery which increased by 7.5% and contributed 1.6 percentage points; and food and beverages, which increased by 5.8% and contributed 1.3 percentage points.

Oxford Economics said the supply side of the economy seems to have stabilised, despite ongoing load shedding and domestic logistical constraints.

“However, load shedding intensity ramped up in July, with forward-looking factory data pointing to continued strain in South Africa’s economy. Although the latest industry data implies modest economic growth in the second quarter, the high cost of living and restrictive monetary policy is weighing down consumer demand.”

The group said the same factors which undermined the economy since the start of the year remain in full force heading into the second half of 2023, but domestic demand is likely to be softer.

“We forecast sluggish economic growth of 0.2% in 2023, with modest upward revisions a possibility.”

ALSO READ: Mining and manufacturing under pressure in May

Mining industry looking up for now

The mining industry bounced back in June after coming under pressure in May, with outputs up in annual and monthly terms at the end of the first half of the year. The industrial sector benefited from less intense daytime load shedding and mining is likely to make a positive contribution to South Africa’s overall real GDP growth in the second quarter.

Seasonally adjusted mining production increased by 1.3% in June, compared to a sharp 3.8% decline during May compared to April. Annual output was up by 1.1% most recently, following May’s 0.7% contraction compared to a year ago.

In the second quarter, seasonally adjusted mining production increased by 1.5% compared to the first quarter, boosted primarily by platinum group minerals and gold. After the mining and quarrying industry increased by 0.9% during the first quarter compared to the previous quarter, the latest production numbers suggest the industry might eke out another modest quarter-on-quarter gain when national accounts data is published next month.

Meanwhile, seasonally adjusted mineral sales at current prices decreased by 3.8% compared to the previous quarter. Mineral sales at current prices dropped by 14.8% during June compared to a year ago. Lower sales for platinum group minerals (-30.9% y/y), coal (-26.2% y/y) and iron ore (-15.5% y/y) were partly offset by lofty gold (+84.8% y/y) and chromium ore (+57.0% y/y) sales.

Oxford Economics said the mining production figures for June were better than expected, thanks to less load shedding, but mean little in the grand scheme of things as total mining production contracted by 7.0% in 2022, compared to an 11.6% uptick in 2021 and a slump of 10.4% in 2020.

“We maintain the national electricity grid remains inherently unstable and not much could have been done to meaningfully improve electricity production capacity. And so, the temporary loadshedding respite during June does not change our growth outlook for South Africa, as logistical infrastructure failures persist.”

The group forecasts South Africa’s economy will hardly grow at all in 2023, with real GDP growth of 0.2% pencilled in for this year.