SA economy at risk of third-quarter contraction

Dismal mining and manufacturing figures for August have raised the prospect of a third-quarter economic contraction.

SA’s mining sector suffered a surprise 3.2% year-on-year contraction in August, worse than the most pessimistic forecast by economists, confirming that the national economy is struggling to build momentum.

Economists polled by Bloomberg expected production to remain unchanged in the sector, which accounts for about 8% of GDP, and was a key contributor to growth in the second quarter.

Manufacturing activity also contracted for the third consecutive month in August, falling 1.8%, though this was better than the 2.5% expected.

More worryingly, the Absa-sponsored purchasing managers’ index (PMI) had fallen to 41.6 index points from 45.7 in August, itself a decline from July. Monthly changes in factory output measured by Stats SA usually tend to be foreshadowed by the PMI.

Recent data showed there was a real risk that SA’s economy contracted in the third quarter, said Capital Economics senior emerging markets economist John Ashbourne. Focus will now be on retail sales figures for August, he said.

Platinum group metals led the decline in mining, Stats SA said on Thursday, falling 12.5% year on year and contributing a fall of three percentage points to the headline figure.

Diamond production fell 29.8%, adding 1.4 percentage points to the decline. Manganese production jumped 34.3% year on year, offsetting the fall by 1.8 percentage points.

A climate of rising geopolitical tension and trade concerns have reinforced investor concerns about a slowing global economy, putting a damper on export prospects for resources, said Investec economist Lara Hodes.

In SA, while the government and mining industry was focused on creating a sustainable industry, it was essential that domestic hindrances including red tape and unreliable electricity supplies be addressed, said Hodes.

gernetzkyk@businesslive.co.za