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The SA Daily 09 October 2019

Still soft SA sector growth

Shireen Darmalingam

  • Data for both mining and manufacturing production for August is due out tomorrow. Bloomberg consensus sees mining output growth as having slowed to 0% y/y, from a 2.4% y/y increase in July. The SA mining sector, accounting for 7.2% of GDP, rebounded in Q2:19 by 14.4% q/q (saar) after a massive drop of 10.8% q/q (saar) in Q1:19. The outlook remains vulnerable amid the intractable global trade war and ever poorer global growth prognosis. SA gold production too has been limiting SA’s total mining production as gold mines struggle to mine profitably given high wage demands, deeper mines, and electricity supply being both expensive and unreliable.
  • Manufacturing production growth is expected to have contracted further in August, by 1.5% y/y, after the 1.1% y/y contraction in July. Manufacturing is therefore unlikely to have contributed much to GDP growth in Q3:19. Still, the manufacturing sector posted positive growth in Q2:19 pf 2.1% q/q (saar), after a significant contraction of 8.8% q/q (saar) in Q1:19, supported largely by production of food and beverages; basic iron, steel and machinery; and motor vehicles and parts.
  • Manufacturing accounts for over 12% of GDP. We foresee modest near-term growth but there is inherent risk in inadequate electricity supply. Still, medium-term growth should rise as Eskom’s financial situation is being addressed by government; a plan is expected in the next few weeks, per the president’s stated objective.

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