South Africa’s economy might have truly entered a technical recession in the first quarter of 2023 after mining output remained on the downside in February, adding to other negative economic growth indicators.
Data from Statistics South Africa (Stats SA) yesterday showed that mining production sank worse-than-expected by 5% year-on-year in February, following an upwardly revised 2.7% decline in January.
This was the 13th consecutive month of contraction in mining activity, amid the adverse impact of prolonged load shedding imposed by troubled utility Eskom.
Production in the mining industry has been negatively impacted since January 2022 by energy supply constraints due to heightened load shedding, prolonged industrial action, and logistical challenges from Transnet.
Stats SA said the annual decline in mining output was broad-based, with eight out of 12 divisions falling in February.
Stats SA’s principal survey statistician, Juan-Pierre Terblanche, said production was pushed lower mainly by coal and diamonds.
“Coal was the largest negative contributor, declining by 12.6% year-on-year. The industry also produced less copper, nickel, manganese ore and chromium ore,” Terblanche said.
“On the positive side, three sectors recorded a rise in output in February. Iron ore production was up by 30.6% year-on-year, while gold increased by 1.7% and the production of platinum group metals inched higher by 0.2%.”
On a seasonally adjusted monthly basis, mining production declined by 4.9% in February, after a downwardly revised 3.3% increase in January.
Seasonally adjusted mining output is critical for the official calculation of quarterly gross domestic product (GDP) growth, and this decline could mark another contribution to the onset of a possible recession.
FNB senior economist Thanda Sithole said this data, together with weaker electricity production and manufacturing output, which respectively contracted by 1.1% and 1.3% in February, corroborated their view that the economy experienced a mild technical recession between the fourth quarter of 2022 and the first quarter of 2023.
Sithole maintained the view of a decline in aggregate mining output this year after the fourth quarter of 2022 GDP data indicated that the sector’s Gross Value Added declined by 7.0% in 2022.
“While the prices of most of South Africa’s major export commodities have moderated amid slowing global growth, idiosyncratic factors such as intensified load shedding, transport and logistics challenges, as well as elevated input costs are expected to weigh heavily on production and export volumes,” Sithole said.
“Over the medium term, we expect industries implementing measures like electricity self-generation to mitigate the impact of load shedding, which should support a recovery in output.”
The International Monetary Fund (IMF) this week maintained that South Afrca’s economy would grow at a paltry 0.1% this year mainly as a result of energy supply constraints, and recommended “urgent action” to restore electricity security.
The IMF highlighted that restoring energy security in South Africa would require attracting private sector participation in the electricity market and addressing Eskom’s operational and financial deficiencies.
Investec chief economist Annabel Bishop concurred that a domestic recession was the risk for this year as South Africa’s productive capacity was collapsing.
Bishop said South Africa was held back by the worsening of its electricity crisis and Transnet’s rail and port capabilities, which damaged export potential, while commodity prices had weakened.
“South Africa’s trade data is volatile, but shows a downward trend since April 2022, and has been affected by a general rise in imports, exceeding the pace of that of exports as global demand weakened,” Bishop said.
“South Africa’s economic growth rate is at high risk of stalling this year, and dipping into negative territory on its unresolved power crisis, while the very slow approach taken by the government has damaged market confidence in South Africa, with the state still largely in the investigative and recommendation stage for Eskom.”
BUSINESS REPORT