Weekly economic wrap: Rand dives, mining and employment up

This week saw the rand breaching the psychological barrier of R18 thanks to Donald Trump’s election win, but on the positive side, employment increased by 1.4%, while mining production increased sharply by 4.7%.

Lisette IJssel de Schepper, chief economist at the Bureau for Economic Research (BER), says the rand tends to be volatile in its reaction to global market dynamics. The local currency depreciated by over 5% against the US dollar compared to a week ago and traded at R18.20 on Friday afternoon.

The rand also lost ground against the euro and pound. “It remains to be seen where the rand will where the rand will settle and whether the recent strengthening trend will return.”

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Rand lowest since August

Bianca Botes, director at Citadel Global, points out that the rand weakened to around R18.30/$, its lowest level since early August, under pressure from the strong dollar and minimal stimulus measures from China, a key trading partner.

“While Trump’s anticipated policies could stimulate US growth, they might also fuel inflation, affecting global financial conditions.”

Botes also points out that gold dropped below $2,560/ounce, marking its fifth consecutive decline to an eight-week low as strong risk appetite and a rising dollar reduced demand.

Brent crude oil held around $72/barrel, influenced by the International Energy Agency’s forecast of a potential oversupply in 2025 if the expanded Organization for the Petroleum Exporting Countries, OPEC+, goes ahead with planned production increases.

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Unemployment rate improves in third quarter of 2024

After three consecutive quarters of upticks the official unemployment rate receded by 1.4% to 32.1% in the third quarter according to Stats SA. Meanwhile, the expanded unemployment rate (which includes discouraged job seekers) fell by 0.7% to 41.9%.

Tshidiso Mofokeng, economist at the BER, says job growth was surprisingly strong and driven by gains in community and social services, construction as well as trade.

“The latest jobs recovery is encouraging and could reflect some first green shoots of the modestly improving economic environment, although stronger real economic growth is required on a sustained basis to make a dent in South Africa’s unemployment problem.”

Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, say the fact that youth unemployment remains critically high at 60.2% for the 15 to 24 age group and at 40.4% for the 25 to 34 age group, underscore the urgent need for pro-growth structural reforms to spur economic expansion, particularly in high-employment multiplier sectors like construction.

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High unemployment will stay while economic growth is weak

Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit believe it is encouraging that the number of unemployed people declined by 373 000, but say it is concerning that the number of discouraged jobseekers increased by a substantial 160 000 as the economy failed to absorb the growth in the labour force.

“The gains lifted employment above the pre-pandemic level. However, the pace of job creation still failed to outpace the growth in the labour force. Consequently, the unemployment rate remained well above pre-pandemic levels of around 30%.

“The outlook for the job market looks more promising. Employment will likely increase moderately as the economy recovers over the next 12 to 18 months. Trading conditions have improved, with load-shedding suspended and logistic networks slightly less clogged.”

They think the main boost will likely come from services driven by the anticipated recovery in consumer demand as real household incomes return to growth, inflation remains subdued and interest rates decline further.

“Further increases could stem from government’s plans to accelerate infrastructure spending. In contrast, government caps on staff numbers will restrict public-sector employment. While employment is forecast to increase, job creation will still be too slow to absorb new entrants into the labour market and reduce unemployment significantly.

“Consequently, the unemployment rate will likely remain high, easing only slightly and leaving a large pool of discouraged workers.”

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Mining production increases sharply in September

Mining production increased sharply by 4.7% in September, after gaining 0.3% in August. The largest contributors were platinum group minerals and iron ore, but coal and gold dragged on production.

Mofokeng says on a monthly basis mining production grew by a solid 3.8% in September. “Thanks to a strong bounce in mining production for September, this means that the mining industry should contribute positively to quarterly gross domestic product (GDP) growth in the third quarter.”

Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say the sharp uptick in mining production surpassed he Reuters consensus, which anticipated modest growth of 2.2%. “After a 0.4% decline in 2Q24, mining output rebounded with a 1.0% increase in the third quarter of 2024, indicating a positive contribution to GDP growth.”

Matshego and Nkonki also say the jump in mining production was above their forecast of 2.2%.

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Manufacturing production disappoints again

Manufacturing production declined by 0.8% in September, similar to August, according to Statistics SA due to the motor vehicles, parts and accessories category decreased by 18.7%. Petrol, chemical products, rubber and plastic products increased by 3.1%.

Mofokeng says the manufacturing industry continues to face challenges such as high production costs coupled with weak domestic and global demand. “Nonetheless, the high-frequency data suggests that manufacturing will eke out modest growth once the GDP figures for the third quarter are published.”

Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say for the third quarter manufacturing output increased by only 0.2%, down from 0.6% in the second quarter, signalling a reduced contribution to third-quarter GDP growth.

Matshego and Nkonki point out that the decline in manufacturing production extended into September, with output contracting by 0.8%, the same as in August.

“The weakness in manufacturing output reflects a still challenging operating environment and subdued domestic and global economic conditions. The sideways drift in manufacturing production should continue despite the improvement in electricity production and the recovery in domestic and global demand as the year progresses, given the scale of the country’s structural impediments.”