12 Aug.
Falling SA factory and mine output signals risk of recession.
The figures add weight to the case for the Reserve Bank to keep interest rates steady for the rest of this year, despite rising inflation.
Manufacturing and mining output both contracted in the second quarter of this year, official data showed yesterday, signalling that growth in the economy slowed sharply in that period. [see posts below]
Factory production dropped by 2% compared with the previous quarter, seasonally adjusted, Statistics SA said. Mining output fell 1%, after a decline of 0,8% in the first quarter .
The data is very bad news as manufacturing and mining together account for just over a fifth of the economy’s overall output and formal employment. The two sectors shed nearly 100 000 jobs in the second quarter.
“If you’re looking for evidence that the economy may move into recession, you don’t have to look much further than the contraction in mining and the poor showing of the manufacturing sector,” Brait economist Colen Garrow said yesterday.
Manufacturing was the main driver of a robust 4,8% increase in overall growth during the first quarter.
Most economists believe that the economy grew in the second quarter, but at a much slower pace.
The figures add weight to the case for the Reserve Bank to keep interest rates steady for the rest of this year, despite rising inflation.
A wave of strikes last month is likely to have further eroded both manufacturing and mining production. The industry would also have been hampered by new, higher electricity prices.
SA’s purchasing managers index, which is a reliable health gauge for manufacturing, plunged to a two-year low last month.
“The short-term outlook for manufacturing remains bleak,” Standard Bank economist Nomvuyo Guma said.
“The international picture is equally grim. This could result in a double whammy for the local economy,” she said.
A slowdown in global growth means there will be diminished demand for local exports, which are already under pressure from strength in the rand. Europe is the destination for most of SA’s manufactured exports.
Slackening global demand also points to lower mineral prices, which will further erode the value of SA’s exports.
The Statistics SA data showed that seven out of 10 manufacturing industries contracted in the second quarter . This was led by falls in the output of motor vehicles and parts, by 7,6%, and wood and paper products, which decreased by 5%.
Production of food and beverages, as well as petroleum and chemical products, also slumped.
“The manufacturing sector is likely to remain under pressure for the remainder of this year,” Nedbank economist Nicky Weimar said.
During June, factory output rose by 0,9% compared with the same month last year. That was little changed from an increase of 1% in May, which was revised up from 0,6% previously.
Mining production fell by an annual rate of 0,7%, with gold output falling 5,7% and platinum group metals up by 5,1%. This week gold breached $1800/oz .
Source: Business Day
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