South Africa could narrowly dodge a technical recession
Mining production in South Africa increased substantially in November 2023, but economists still have a dire outlook for the sector.
According to Stats SA, mining production increased from 3.6% in October to 6.8% in November – far ahead of the consensus of 3.0% y/y from the Reuters poll.
The largest positive contributors to the 6.8% print were:
- PGMs (15.2% and contributing 3.9 percentage points);
- coal (10.6% and contributing 2.5 percentage points); and
- iron ore (20.1% and contributing 2.1 percentage points)
Seasonally adjusted mining production also increased from 2.0% in October to 2.1% in November.
“The sustained monthly momentum indicates a positive contribution to 4Q23 GDP growth. It aligns with our view that GDP likely rebounded in 4Q23 following a 0.2% q/q decline in 3Q23,” Thanda Sithole, FNB Senior Economist, said.
Outlook
In 2023, the mining sector faced several headwinds, such as weak external demand, low commodity prices, and domestic infrastructure constraints, with overall output declining by 0.6% in the 11 months leading up to November.
This was, however, an improvement from the 7.5% decline seen during the first 11 months in 2022.
“While the peak of load-shedding intensity has passed, the mining sector will continue to grapple with enduring challenges posed by port and rail infrastructure weaknesses.
“The dynamics of external demand will play a pivotal role, and we maintain a cautious outlook given escalated geopolitical tensions. Potential disruptions in shipping could further impact domestic exports of break bulk commodities,” Sithole added.
Investec Economist Lara Hodes also noted that despite November’s result – buoyed in part by base effects – the fragile global environment will continue to hurt commodity demand.
The latest JP Morgan Global Manufacturing PMI survey results showed that global manufacturing remained on a lacklustre footing, with the Eurozone seeing manufacturing production on average sliding for the ninth consecutive month.
“Moreover, international trade conditions deteriorated. A deceleration in trade, exacerbated by the effects of an escalation in geopolitical tensions, remains a further downside risk to the already subdued global growth environment,” Hodes said.
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