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The domestic data releases were mixed this week, with a downtick in manufacturing in August, but mining output looked a little better. The rand lost some ground this week, while there is ongoing concern about oil prices due to the escalating conflict in the Middle East.
Tracey-Lee Solomon, economist at the Bureau for Economic Research (BER), says price in commodity markets were volatile as the impact of the war in the Middle East, weaker global demand, easing interest rates and inadequate Chinese stimulus measures all worked against each other.
The price of Brent crude briefly rose above $80/bbl due to Middle East tensions but retreated to $76/bbl due to demand concerns.
Isaac Matshego and Busisiwe Nkonki from the Nedbank Group Economic Unit say the rand traded weaker against the dollar, closing at around R17.50/$ on Thursday as global market jitters remained elevated due to the Middle East tensions.
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Bianca Botes, director at Citadel Global, says the rand weakened to around R17.60/$ this week, pressured by the stronger greenback and ongoing uncertainty surrounding China’s economic outlook. The rand’s performance was also influenced by the anticipation of further repo rate cuts.
She points out that Brent crude oil futures rebounded to around $77/barrel after two consecutive losing sessions. “This recovery was driven by concerns over supply risks, particularly due to the ongoing conflict involving Iran and possible supply disruptions from Hurricane Milton.
“However, rising crude inventories in the US and a cautious demand outlook, especially after China’s lacklustre stimulus measures, tempered the rally. The US Energy Information Administration also slashed its demand forecast for 2025, citing slowdowns in key economies.”
She says gold prices edged higher, rebounding to $2,615/ounce after touching a three-week low. “The precious metal benefitted from the mixed economic data in the US, particularly the rise in unemployment claims, which challenged the notion that the US labour market was immune to higher interest rates. “
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According to Statistics SA, seasonally adjusted mining production increased by 2.9% in August after the 0.8% contraction in July. Annual output was up by only 0.3% after the previous month’s 1.0% decline. The largest positive contributors to the annual increase were manganese ore (+16.0% and contributing +1.2 percentage points), platinum group minerals (PMGs) (+4.7% and contributing +1.2 percentage points) and chromium ore (+24.8% and contributing +1.1 percentage points).
Jee-A van der Linde, senior economist at Oxford Economics Africa, says mining will require another strong monthly gain in September for mining to contribute positively to gros domestic product (GDP) in the third quarter after the sector detracted from GDP in the second quarter.
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“Energy supply improved over the last six months, but the mining industry is still dealing with a sharp deterioration in rail services, which has forced many miners of bulk commodities, like coal and iron ore, to reduce output.
“In addition, the past 12 months have not been easy for the majority of mining companies. While producers of gold and iron ore profited from favourable commodity prices, producers of coal and PGMs faced sharp price declines.
“Consequently, the sector was forced to shed thousands of jobs throughout the first half of 2024. It will take several months (or even quarters) for the sector to reap the benefits of improved power supply and the possible efficiencies of the new government.”
Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say with mining output was still down by 1.4% over the three months ending in August, the mining sector could potentially weigh on GDP in the third quarter without sustained monthly growth.
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According to Statistics SA, seasonally adjusted manufacturing production dipped by 0.6% in August compared to the 1.6% increase recorded in July. Manufacturing output was down by 1.2% after the 1.6% increase in July.
The largest negative contributors to the annual decrease were the subsectors for motor vehicles, parts and accessories and other transport equipment (-16.1% and contributing -1.6 percentage points) and basic iron and steel, non-ferrous metal products, metal products and machinery (-5.2% and contributing -1.2 percentage points.
Van der Linde says with the September manufacturing PMI increasing above the neutral 50-point level in September, there is still a good chance that manufacturing could make a small positive contribution to third-quarter GDP.
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However, he says things look somewhat brighter owing to improved business confidence and prospects of stronger demand. “The August decline was probably a once-off and we expect output to ratchet up in September. Overall, industry data releases so far for the third quarter affirm our view of modest sequential GDP growth in the third quarter.
“Our base case is for South Africa’s real GDP to expand by 1.0% in 2024, reaching 1.7% next year thanks to improved post-election growth prospects.”
Matshego and Nkonki say the decline in manufacturing output was worse than their forecast of an increase of 2% and the market consensus of a drop of -0.5%. “The weakness in manufacturing reflects a still challenging operating environment and subdued domestic and global environment.
“The sideways trend in manufacturing production should continue as the year progresses despite the improvement in electricity supply and the recovery in domestic and global demand, given the depth of the country’s structural impediments.”
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According to the South African Reserve Bank, the country’s gross foreign reserve holdings increased by $428 million in September, closing the month at $63.6 billion.
Improvements in gold reserves and Special Drawing Rights (SDR) holdings contributed to the overall increase, while foreign exchange reserves declined.
The 4.9% increase in gold prices from August to September partly explains the higher reserve levels, Solomon says.
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