Another blow to South Africa’s economy

 ·14 May 2024

Total mining production, not seasonally adjusted, declined worse than expected, adding another sector that dragged on South Africa’s GDP output in the first quarter.

Production declined sharpy by 5.8% y/y in March, after expanding by 10.3% y/y in February, in part, due to unfavourable base effects, the mid-March and Easter holidays as well as water shortages, said FNB senior economist, Thanda Sithole.

The result was worse than the Reuters consensus prediction of a more moderate 1.8% y/y decline.

“Seasonally adjusted mining output, which aligns with the official calculation of quarterly GDP growth, fell sharply by 5.0% m/m, compared to a 5.3% m/m increase in the prior month,” Sithole said.

“Overall, output declined by 1.7% q/q in 1Q24, after expanding by 2.4% q/q in 4Q23, confirming that the mining sector’s gross valued added (GVA) dragged GDP growth.”

Mineral sales—a proxy for revenue—experienced a decline of 14.9% y/y in March, worse than the 2.5% y/y decline in February.

Year-to-date (YTD) mineral sales are down by 12.4% compared to the corresponding period last year.

This decline reflects reduced profitability attributed to lower commodity prices, logistics challenges and a global economic downturn.

However, gold mineral sales surged by 64.2% YTD, buoyed by a favourable gold price environment.

“The poor performance in total mineral sales does not bode well for the mining sector’s contribution to fiscal revenue and wage income,” Sithole said.

The economist said that, despite the decline in output in March, the outlook remains “cautiously” hopeful, adding that the data does not alter FNB’s view that the mining sector’s GVA should recover this year after declining by 0.3% in 2023 and 7.1% y/y in 2022.

“Our cautiously optimistic view is grounded on expectations of a stable global growth environment and, notably, improvements in the domestic energy sector.

“With the intensity of load shedding expected to diminish this year and beyond, following its peak in 2023, we anticipate a positive impact on the mining sector output.

“However, persistent inefficiencies in ports and rail network industries remain a binding constraint on the sector’s productivity and profitability,” Sithole said.


Read: Unemployment rate ticks higher in South Africa

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