Already suffering from weak economic prospects due to stifled growth in the second quarter of the year, South Africa’s economy is set to suffer further thanks to persistent rolling blackouts.
Two major economic indicators released this week – manufacturing and mining production – show that load shedding continues to be a massive drag on productivity and output in South Africa’s key sectors.
According to Nedbank economists, manufacturing activity in September showed some recovery in September as volumes expanded by a seasonally adjusted 4.9% month-on-month and by 2.9% yeear-on-year.
“However, the underlying momentum has remained subdued, with volumes up by only 0.1% year-on-year over the first nine months of this year,” the group said.
In recent months, the normalisation of operations at a major car manufacturer in KwaZulu Natal following the disruptive floods in April has supported the rebound in aggregate volumes – but overall, output in the major manufacturing groups was mixed.
Despite this, Nedbank said that the recovery in manufacturing in the third quarter was encouraging and points to the sector making a positive contribution to aggregate GDP following the negative contribution in the second quarter. This is expected to show further improvement in the final quarter.
“However, the momentum will be weaker due to the intense power outages and the effects of the Transnet labour strike in October,” it said.
Softer global demand due to higher interest rates, and Russia-Ukraine war-related disruptions will also dampen overall activity in manufacturing. The Absa PMI has continued to hover around the 50 level, suggesting lacklustre momentum in the sector, it said.
While manufacturing output was slightly more optimistic, mining productivity was “dismal”, Nedbank said, noting that it contracted by 4.5% year on year in September from an upwardly revised 6.4% in August.
“The latest reading marks an eighth straight month of contraction. The last time we observed consecutive contractions of this magnitude was between February 2020 and February 2021, at the height of the Covid-19 pandemic,” it said.
The current output levels can mainly be attributed to ongoing power supply disruptions, the economists said.
Mineral sales accelerated by 20.7% year on year in September, the fastest pace since the start of 2022. Although commodity prices have moderated from their early 2022 highs, some commodities have continued to offer support, the bank said.
“Coal prices, in particular, have edged higher this year due to supply concerns related to the Russia-Ukraine war and Europe’s consequent ban on Russian coal. Overall sales were mainly driven by coal, which accelerated by 63.1%. Gold, other metallic minerals, and manganese ore also added to the upside.”
Nedbank said that mining sector performance will remain precarious in the coming months amid a dim economic outlook.
“Demand conditions will deteriorate given the expected slowdown in the global economy, particularly in advanced countries, some of which are key markets for South Africa.
“China, which faces recurring Covid-19 waves and consequent restrictions, further exacerbates the weaker demand outlook. The prices of most of South Africa’s key commodities have moderated over the course of the year, indicating that the country is benefiting less on the value front,” it said.
However, coal demand and, thus, prices should remain supportive on the back of ongoing supply concerns sparked by Europe’s ban on Russian coal and increased demand from Asia.
“On the domestic front, persistent power supply disruptions remain a threat to output.”
Chief economist at BNP Paribas this week changed the group’s outlook for South Africa, dropping GDP growth prospects for 2022 to 1.7% from 2.0% before, on the basis that the country’s economic output is expected to be much lower than forecast due to load shedding.
Read: South Africa’s outlook sours