From left: Workers on the production line at the Toyota manufacturing plant in Durban. (Photo: Waldo Swiegers / Bloomberg via Getty Images) | Unsplash | A mine worker inserts steel reinforcement rods into the rock face inside a mine shaft located outside the town of Lydenburg in Mpumalanga, South Africa. (Photo: Waldo Swiegers / Bloomberg via Getty Images) South Africa’s manufacturing sector was the star economic performer in August before the lights flickered and faded as spring set in. Output grew 1.4% in the year to August, far surpassing the Bloomberg consensus of a 0.7% decrease. And on a monthly basis, production rose 2.1% compared with July. But in the three months to the end of August, output declined 2.9%.
The performance in the mining sector was more mixed. On a year-on-year basis, production declined 5.9% after slumping 8.2% in July and 7.2% in June. On a monthly basis, the number was flat after a 3.1% bounce in July, giving rise to a feeble 0.6% lift in production in the three months to the end of August.
What does it all add up to, with electricity production thrown into the mix?
“The mining, manufacturing and electricity production data for August gives a 1.7% seasonally adjusted lift for industrial production in the first two months of Q3 compared with the first two months of Q2,” Chief Investec Economist Annabel Bishop told Business Maverick.
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But she said that, given the headwinds of September, which included the surge in load shedding, the final Q3 number could be flat – or even a small contraction.
If the economy does contract on a quarterly basis in Q3 after shrinking 0.7% in Q2, it would herald a recession.
“Mining will be a drag on Q3 GDP growth and manufacturing will escape a contraction or show very little growth. But the manufacturing sector declined in June and the load shedding was more severe in September, and that spilled over into the demand side of the economy,” said Jee-A van der Linde, an economist at Oxford Economics Africa.
“Currently, we expect to see a Q3 contraction of 0.15% to 0.2%, and that’s conservative. So, we expect a shallow recession,” he added.
FNB Senior Economist Thanda Sithole noted this week in a note on the manufacturing data that “while the risk of a technical recession is still elevated, our base case is for a subdued economic recovery in the second half of 2022”.
And even if the economy has narrowly escaped a recession, the outlook so far this quarter is hardly rosy in the face of persistent load shedding, the Transnet strike, rising interest rates and slowing global growth.
Throw in a failing state, and it all adds up to a quagmire of note. DM/BM