Recession warning despite slight upside in figures
SA’s economy still looks dreary, with fears that the country is heading for its first recession since the financial crisis.
While Thursday’s mining and manufacturing figures surprised on the upside, analysts said it would take a miracle in the retail sector to avert a recession.
The retail sales figures are expected on Wednesday.
A recession points to a prolonged slowdown in economic activity, stunting job creation and damping investment. This spells trouble for President Cyril Ramaphosa’s ambitious growth plans and may see economists lower their forecasts further.
In May, the manufacturing sector grew by 1.5% while mining production contracted by 2.6%, although far less than analysts had anticipated.
"Surprisingly positive figures from the mining and manufacturing sectors suggest that SA’s economy improved a bit last quarter," said Capital Economics economist John Ashbourne. "Even so, GDP probably continued to fall."
The economy faltered in the first quarter with weak performances in mining, manufacturing and agriculture, and the worst quarterly contraction in nine years last quarter.
Ashbourne said retail volumes would have to have risen at the fastest rate in five months for the economy to have avoided another contraction in May.
"Given the recent weakness of confidence indicators, we think that this is unlikely."
In 2017, mining contributed 8% to SA’s GDP while manufacturing contributed 13%.
Mining has been hampered by persistent policy uncertainty around the Mining Charter, which has been hotly contested, and the stronger rand.
"Ongoing uncertainties relating to government policy as well as the impact of the stronger rand exchange rate, before the recent weakness, have taken a toll on the mining sector in recent months," said NKC economist Elize Kruger.
The charter is only expected to be finalised in October or November after public consultations on the current draft.
The Minerals Council, an industry voice, said the charter in its current format would not promote investment and growth in the sector.
While the recovery in manufacturing output is expected to continue, the sector also still faces headwinds including rising fuel costs and an impending global trade war.
"An increased tax burden and higher fuel prices are keeping a lid on already mediocre domestic demand, while ongoing policy uncertainties are keeping investment spending hostage," said Kruger.