Two nice surprises for South Africa

 ·10 Aug 2023

Stats SA has published the latest monthly data for the mining and manufacturing sectors in South Africa, with each delivering growth at rates far larger than market consensus had anticipated.

This bodes well for the country’s second-quarter GDP number, as both sectors are significant economic contributors.

However, the good news still comes with the caveat that prospects for the third quarter may not be as bright.

According to Stats SA, the country’s mining sector grew by 1.1% year on year in June after shrinking by 0.7% y/y (previously -0.8% y/y) in May.

The outturn was better than the Bloomberg consensus prediction of a 0.3% y/y expansion.

Seasonally adjusted mining output, which aligns with the official calculation of quarterly GDP growth, also expanded by 1.3% month-on-month following a monthly contraction of 3.8% in May.

Thanda Sithole, FNB Senior Economist, said that, despite this, output expanded by 1.5% quarter-on-quarter in 2Q23, reflecting continued momentum from the 1.4% quarterly expansion in 1Q23.

“This means that the mining sector contributed positively to 2Q23 quarterly GDP growth,” he said.

A similar pattern was seen in the manufacturing sector.

Here, Stats SA showed that total manufacturing output (not seasonally adjusted) expanded by 5.5% year-on-year in June, reflecting an acceleration from 2.4% y/y (revised from 2.5% y/y) growth in May.

The outcome was better than the 3.0% y/y expansion predicted by Bloomberg consensus.

Seasonally adjusted manufacturing output, which aligns with the official calculation of quarterly GDP growth, increased by 1.2% m/m after shrinking by 1.3% month-on-month in May.

Output expanded by 2.3% quarter-on-quarter in 2Q23, advancing from the 1.4% quarterly expansion in 1Q23.

“The manufacturing sector also contributed positively to 2Q23 quarterly GDP growth, adding to the cheering momentum from the mining sector. This is encouraging and poses an upside risk to (FNB’s) -0.1% preliminary quarterly GDP prediction for the second quarter.” Sithole said.

Outlook warning

While the June print paints a brighter picture for the second quarter of the year – adding to the positive trend that came along with lower levels of load shedding over the month of June – Sithole warned that it is not a turnaround for South Africa as a whole.

“Despite the sustained quarterly growth momentum, the mining sector remains challenged by load-shedding and logistics constraints, as well as moderating external demand. Commodity prices have come down relative to last year, weighing on earnings and the mining sector’s contribution to government tax revenue collection,” he said.

Output is also down by 1.0% in 1H23 compared to 1H22.

“This is consistent with our expectation of a continued, albeit moderate, decline of around 2.0% – relative to a 7.1% decline in 2022 – in the mining sector’s gross value added,” he said.

On the manufacturing side, just like mining and every other sector in South Africa, the industry is suffering from load shedding and all the related ills it has wrought on the country.

“Year-to-date growth in manufacturing output is flat – 0% year-on-year – but indicates an improvement from the 1.2% decline during the corresponding period last year,” Sithole noted.

“The manufacturing sector is likely to reflect mild weakness over the 2H23, given prevailing load-shedding and logistics challenges, as well as moderating global demand. This is consistent with the latest manufacturing PMI for July, which remained in contractionary terrain, below the 50-neutral mark, for the sixth successive month and, in fact, fell to 47.3 index points from 47.6 in May.

“The business activity PMI fell to 38.1 in July from 48.9 in June, indicating a possible relapse in monthly manufacturing output,” he said.

A similar analysis was presented earlier this week by the Bureau for Economic Research (BER), which warned that the resurgence of stage 6 load shedding in July will likely put a damper on the mining and manufacturing sectors in Q3.

“The weakness we initially expected for Q2 may simply be postponed to the third quarter,” the BER said.

Read: Tough times continue for South Africa

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