Load-shedding knocks mining and manufacturing in the first quarter
Despite a better performance in March, both sectors recorded contractions in the first quarter of the year – with production severely constrained by load-shedding
Power cuts in the first quarter of the year delivered a blow to the mining and manufacturing sectors, which does not bode well for economic growth.
Both sectors recorded contractions in the first quarter of the year — with production severely constrained by load-shedding. SA saw its return in November, with the most severe power cuts the country has seen. There were 26 days of power cuts up to the end of March.
Mining production was also hit hard in recent months by strikes at gold mines led by the Association of Mineworkers and Construction Union (Amcu), where about 15,000 workers were on strike for almost five months at the Driefontein, Kloof and Beatrix mines. Workers returned to work at the end of April, which could see a recovery in gold production levels.
Mining production decreased 1.1% year-on-year in March and was down 3.4% in the first quarter. Manufacturing production grew 1.2% in March but decreased 2.4% in the first quarter.
Mining contributes about 8% to SA’s GDP while manufacturing contributes 13%.
While retails sales figures next week Wednesday will paint a clearer picture of how the economy performed, growth will likely be negative in the first quarter. The data will increase pressure on President Cyril Ramaphosa to push through economic reforms.
Analysts expect that after the elections Ramaphosa will have more room to implement structural reforms that encourage investment that will spur growth.
“After a weak first quarter we think that conditions will improve later in 2019 and that economic growth will pick up a bit,” Capital Economics economist John Ashbourne said.
“More timely data do, at least, suggest that conditions improved in April. The severe electricity outages in March prompted by Eskom’s woes eased. Surveys were also more positive,” he said
However, some analysts are less optimistic about a meaningful recovery in both sectors.
FNB economist Jarred Sullivan expects a rebound in the second quarter but warns that growth will probably not trend sustainably higher.
While there have been no power cuts since March and the mine strike has ended, mining and manufacturing will continue to face headwinds from slowing global economic momentum and stagnant commodity prices. Demand for commodities out of key consumers such as China is likely to ease as that country experiences slower economic growth.
An unstable electricity grid and softer global conditions continue to cloud the outlook, Nedbank senior economist Nicky Weimar said.
“If Eskom manages to keep the lights on or at least to limit future load-shedding to stage 1, output should improve further off a low base over next three quarters,” she said.
“The pace of recovery will, however, be contained by softer global and domestic demand, stagnant commodity prices and a relatively steady rand,” Weimar said.