SA may have escaped recession in second quarter
Mining and manufacturing data for May show that conditions remain subdued, but activity picked up in second quarter after a dismal first
Evidence is mounting that SA’s economy experienced a modest recovery in the second quarter of 2019, with mining and manufacturing data for May providing some hope that SA escaped a recession in the three months to end May.
SA’s shock 3.2% economic contraction in the first quarter has underscored the difficulty the government faces in reining in the budget deficit in 2019, but latest data shows that SA’s economy remained somewhat resilient in the second quarter.
Mining production rose 3% in May compared with April, Statistics SA said on Thursday, beating Bloomberg’s 0.3% forecast. Higher iron ore and platinum group metal prices made this picture rosier, with the value of mineral sales rising 10.7% year on year in May, led by iron ore, which surged 68.7%. Platinum group metals sales rose 37.6%.
Measured on a seasonally adjusted basis, mining production rose by 2.2% quarter on quarter for the three months ended in May due to a 4.3% upturn in coal production, said FNB economist Jared Sullivan.
“While the mining sector has been adversely affected by weakness in most global commodity prices, we assess that total mining output contributed positively to second-quarter GDP, amid a rebound from load-shedding adversely affecting production in the first quarter,” Sullivan said.
Manufacturing output fell 1.5% in May compared with April, worse than expected, but April — the first month of the second quarter — had been a surprising positive month for the sector.
The latest high-frequency statistics suggest that the economy probably returned to modest growth in the second quarter, off the first quarter’s very low base, said Nedbank Group economic unit economists Nicky Weimar and Dennis Dykes in a note.
“However, the underlying pace of activity is likely to remain weak and patchy,” they said.
Year on year, manufacturing — which contributes 13% of GDP — grew 1% in May, its lowest growth rate in three months.
Mining, which contributes about 8% of GDP, contracted 1.5% year on year, its seventh consecutive month of decline.
The pace of decline for mining has slowed somewhat, considering a marked 8% year-on-year drop in February, said Investec economist Lara Hodes.
While the prices of many commodities had risen recently, trade war and a slowing global economy posed a risk to prices, said Hodes.
“Additionally, locally, access to and mounting costs of fundamental inputs, especially elevated electricity prices continue to weigh heavily on this energy-intensive sector, inhibiting activity,” she said.