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The rand kept its cool this week after US president Donald Trump issued an executive order to punish South Africa for human rights violations against farmers and its stance against Israel’s destruction of Gaza.
After trading at R18.44/dollar last Friday afternoon before the announcement of the executive order, the rand briefly touched R18.52 on Wednesday before ending the week on R18.32/dollar on Friday afternoon.
While the country waits to hear about National Treasury’s financial plans for the next year, the economic news in the country also centred on manufacturing and mining production.
Bianca Botes, director at Citadel Global, points out that the South African All Share Index demonstrated robust performance, trading over 6.9% stronger for the month. Gold held firm around $2,920/ounce, remaining near recent record highs as it heads towards its seventh consecutive weekly gain, which will be its longest positive run since 2020.
Brent crude oil futures rose to around $75.20/barrel, supported by the delay in Trump’s reciprocal tariffs on US trading partners and a more optimistic outlook from the International Energy Agency. Despite hitting their lowest levels since late December on Thursday, crude prices are on track to post a slight gain for the week, Botes says.
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“The US Dollar Index continued its recent decline to around 107 and is on track to lose about 1% for the week. This weakness is primarily driven by components of the Producer Price Index (PPI) data (although the overall PPI reading was higher than expected), which contributes to the Personal Consumption Expenditure (PCE) Index, the Fed’s preferred inflation measure, which was softer.”
Tracey-lee Solomon, economist at the Bureau for Economic Research (BER), says the sporadic US policy announcements once again propelled the gold price to a record high, inching closer to the $3 000/oz mark.
“Typically, high interest rates dampen gold’s appeal as a non-yielding asset and the Federal Reserve’s “higher for longer” stance would be expected to restrain the rally. However, persistent market uncertainty, exacerbated by the Trump administration’s shifting tariff policies and unpredictable timelines, continues to drive demand for safe-haven assets.”
She says the fact that the rand was largely unchanged against the dollar was more a result of dollar weakness than rand strength. “Indeed, the rand weakened by 0.7% against the euro and 1.3% against the pound sterling. Meanwhile, Brent crude prices slipped as optimism over a potential Russia-Ukraine peace deal raised expectations of a further supply boost in an already well-supplied market.”
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According to Statistics SA, total manufacturing production decreased by 0.4% in 2024 compared to 2023, with the most significant contractions from motor vehicles and transport equipment, which contracted by 13.3% and the metals subsector, which decreased by 2.9%.
On the positive side, the food and beverages subsector saw solid growth of 3.7%, with chemicals up by 2.6%.
In December, production fell by 1.2%, slightly better than the 1.7% contraction expected by the Reuters consensus, Nkosiphindile Shange, economist at the BER, says.
“On a seasonally adjusted basis, production fell by 2.4% – this weakness was foreshadowed by a slump in the Absa PMI in December. On a quarterly basis, manufacturing production declined by 0.8% in the fourth quarter of 2024 compared to the third quarter, with six of the ten subsectors contracting.
Mamello Matikinca-Ngwenya, Siphamandla Mkhwanazi, Thanda Sithole and Koketso Mano, economists at FNB, find it concerning that seasonally adjusted manufacturing output, which is crucial for quarterly GDP calculations, fell by 2.4% in line with the PMI Business Activity Index.
“The manufacturing sector remained under pressure in 2024, constrained by weak domestic demand and a challenging global environment. Output declined by 0.4% for the year, following subdued growth of 0.6% in 2023. However, an anticipated improvement in domestic aggregate demand, coupled with the suspension of load shedding, should help drive manufacturing recovery in 2025.”
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Meanwhile, mining production grew by 0.4% in 2024 compared to 2023, following growth of 0.1% in 2023 and a significant decline of 7.8% in 2022. Mining production contracted by 2.4% in December, going against expectations for growth in output.
Platinum group minerals declined by 7.1% and gold production by 8.4%, with mining output decreasing by 3.9% in December. Shange says this meant that mining production was 0.3% lower in the fourth quarter than in the third quarter, with the largest decreases coming from manganese and iron ore.
Jee-A van der Linde, senior economist at Oxford Economics Africa, points out that the industrial sector’s economic contribution has more than halved over the past three decades to just under 20%. “This decline is consistent with the trend of de-industrialisation observed in the manufacturing sector.
“Although the industrial sector is benefitting from the absence of load shedding, logistical constraints remain an issue. It will take several quarters for the mining sector to reap the benefits of improved power supply and the possible efficiencies of the new government.”
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He also points out that South Africa will soon get a new minerals cadastre, replacing the defective Samrad system, which has been in place since 2011. “Speaking at this year’s Mining Indaba, the minister of mineral and petroleum resources, Gwede Mantashe, said the system is on track to go live by June.
“A more transparent and efficient cadastral system should boost exploration activities and investment, which have evaded South Africa’s mining sector in recent years.”
Matikinca-Ngwenya, Mkhwanazi, Sithole and Mano say the contraction in mining output is concerning because it weighs on quarterly GDP growth. However, they point out that despite domestic and external demand challenges, mining output grew by a modest 0.4% in 2024,.
“While the continued suspension of load shedding and gradually stabilising logistics should support mining output recovery, a challenging global trade environment, subdued commodity prices and slowing growth in China pose significant headwinds.”
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Isaac Matshego and Busisiwe Nkonki, economists at the Nedbank Group Economic Unit, say mining as well as manufacturing production will weigh on GDP growth in the fourth quarter. “Manufacturing contracted by 0.8%, with six out of the ten divisions declining.
“Mining reversed its gains in the third quarter of 2024, registering a decline of 0.3%. While mining grew over the year, up by 0.4%, manufacturing production fell by 0.4%. The lull in load shedding must have supported output in mining, while the soft and slow recovery in demand was an insufficient boost to manufacturing production in the face of high operating costs.”
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