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The industrial sector continued to underperform, reflecting the lack of demand and economic challenges facing the country.
Production in the mining sector contracted in May by 0.8% from April’s positive 3.2% year-on-year reading. April was the only month in which mining production increased after 14 consecutive months of negative growth. To date, the sector has declined by 1.5% year-on-year - indicative of the sustained weakness and prevailing structural constraints in the economy.
Despite the recent high commodity prices and the contribution to revenue last year, the sector contracted by 7.2% annually in 2022, as logistical challenges, load shedding and reduced global demand weighed on the sector.
READ: Mining companies reluctant to invest in SA amid ongoing infrastructure and energy crises
Economists said global demand remained muted with a less severe winter than had been anticipated in Europe, and low global growth together with high inflation and rising interest rates have not helped the local industry.
Platinum group metals (PGMs) and diamond production weighed on the sector reeling from logistical challenges and load shedding.
Said lead economist at KPMG Frank Blackmore:
The largest positive contributors to May’s number were gold and manganese ore, which rose by 27.3% and 9.4% respectively.
On a monthly basis, mining production declined by 3.8% in May 2023 compared with April 2023.
FNB senior economist Thanda Sithole stated: "Though today’s outcome is not encouraging, statistical base effects from February’s sharp decline in output could see continued quarterly expansion in the mining sector’s gross value added in second quarter, which will be favourable for quarterly GDP growth. This is premised on expectations of better mining output in June, given the load shedding reprieve during that month."
Sithole has pencilled in a shallow contraction in mining output this year relative to last year’s 7.3% contraction.
"The external environment remains less favourable for mineral export commodities amid consumption-led growth, particularly in China. Meanwhile, growth in Europe and the US is expected to remain subdued. Domestic transport and logistics challenges do not bode well for trade, and the recent burning of trucks could further complicate operating business conditions," he said.
MANUFACTURING
Meanwhile, manufacturing continued to limp along pulled down by the country's multitude of challenges that weighed on confidence and investment appetite in the sector.
Manufacturing registered growth in May, edging up 2.5% year-on-year but down from 3.6% in April. On a monthly basis, however, manufacturing production contracted by 1.3% in May 2023 compared with April 2023.
READ: PMI plunges to its lowest level since 2021
Activity in the sector was a mixed bag in 2022, mostly negative, largely because of load shedding and the floods that devastated manufacturing in KwaZulu Natal in April last year. All of these factors coupled with high inflation and high interest rates put a damper on the sector as demand in the economy waned.
Sithole warned:
"This is consistent with the latest manufacturing PMI for June, which remained in contractionary terrain (i.e., below the 50-neutral mark) for the fifth successive month and, in fact, fell to 47.6 index points from 49.2 in May, despite loadshedding reprieve.”
Despite the challenges in manufacturing, it could be one of the key drivers of growth in the second quarter of 2023 if it holds on to the current growth momentum.
Economists say growth in the sector could be a game changer to moving the needle down in the country’s unemployment rate which in turn could lift economic growth.
The industry added 4 000 jobs in the three months to March, bringing employment in the sector to just under 1.195 million according to StatsSA.
