Manufacturing and mining output deceased on an annual and monthly basis, indicating weak domestic and external demand.
The latest manufacturing and mining data indicates that economic growth in the country is slowing down and is even stagnating. Manufacturing and mining are especially important as they contribute about 20% of overall gross domestic product (GDP) in production.
The Bureau for Economic Research (BER) at Stellenbosch University says the two domestic production data releases firmed up its view that South Africa’s economic growth slowed materially (if not stagnated) in the third quarter of the year.
“High-frequency mining and manufacturing data both show a quarterly contraction in production relative to the second quarter, despite load shedding being somewhat less intense in the third quarter. Electricity production indeed increased by 0.7% in the third quarter compared to the second quarter, following a 1.2% contraction in the second quarter,” the bureau says.
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Food and beverage production drag on manufacturing
According to Stats SA, manufacturing production plunged 4.3% in September compared to a year ago after a downwardly revised 1.5% increase in August. While a worsening in the Absa PMI foreshadowed the decline in September, it was more pronounced than market expectations for a 2.6% year-on-year contraction.
Seven out of the 10 main subsectors contracted, with the most significant drag coming from the production of food and beverages (-10.5% and shaving off -2.6% percentage points) and motor vehicles (-19.7% and shaving off -2.3% percentage points).
In addition, seasonally adjusted manufacturing production fell 0.5% in September, compared to a 0.4% month-on-month increase in August. Together with the notable monthly contraction recorded in July, this resulted in real manufacturing production falling 1.2% quarter-on-quarter in the third quarter.
The bureau says as such, the sector is set to subtract from quarterly real GDP growth in the third quarter and, unfortunately, the October Absa PMI suggests the sector also experienced a tough start to the fourth quarter.
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Diamonds dragged mining down
In the mining sector, statistics from Stats SA show production declined 1.9% year-on-year in September, slightly better than expected and marginally improved from an upwardly revised 2% year-on-year drop in August.
The biggest drag on annual growth stemmed from the production of diamonds (down 61.4% and shaving off 2.9% percentage points), followed by ‘other’ metallic minerals (-17.1% and shaving off 0.5% percentage points) and manganese ore (-5.6% and shaving off -0.4% percentage points.
The bureau says the negative impact was countered somewhat by decent growth in iron ore production (+8.5% year-on-year, contributing 1.0% percentage points). However, on a monthly seasonally adjusted basis, mining production fell 0.3% month-on-month in September after the 1.2% rise in August.
“Alongside the poor performance in July as well as August, this contributed to a 1.6% quarter-on-quarter contraction in mining output in the third quarter. As with manufacturing, the mining sector is also likely to weigh on quarterly real GDP growth, also despite an improvement in load shedding and the accompanying quarterly uptick in electricity production.