Figure 1: Manufacturing growth vs PMI*
  • Manufacturing production contracted by 1.4% y/y in July, compared to consensus expectations of -0.3% y/y (June -2.2% y/y) mainly on a decline in the production of petroleum and steel. Mining production saw growth of 0.9% y/y (June 1.3% y/y), with a fall in the production of platinum group metals and iron ore.
  • With a systemic global economic recovery under way since the second half of 2016, SA’s economy has been out of kilter with the steady improvement in the global cycle, weakening, and then falling into recession, before rebounding in Q2.17 by 2.5% qqsaa, or 1.6% qqsaa excluding agriculture (without the low base of the recession the economy only grew by 1.6% qqssa in Q2.17, and excluding the agriculture sector as well the economy essentially stagnated by 0.1% qqsaa in Q2.17).
  • Typically, when the global cycle has strengthened systemically, South Africa’s economy has followed suit on a rise in demand for its exports, and so a marked lift in its mining and manufacturing industries.
  • While mining production has shown some improvement this year compared to last, it comes off a low base. Without this statistical distortion, mining production would have contracted this year.
  • The growth in mining production in South Arica is not concomitant with the lift that should have occurred given the rise in metal prices of 20.4% y/y in July (or 24.2% y/y to date), and the rise in commodities prices of 6.0% y/y in July (or 8.7% y/y to date). Mineral sales fell 2.3% y/y in June, again at odds with the rise in global commodity prices, with the rand not seeing substantial change over Q2.17 or in July.
  • Manufacturing production in SA is proving to have even less of a link to the global economic upswing, as the sector saw suppressed production compared to a year ago, both in July and on a year to date basis (the later evidencing -1.7% y/y). This poor performance year to date has been led by the textiles (-3.9 y/y), wood (-3.0 y/y), glass (-4.0% y/y), petroleum (-6.2% y/y), motor vehicles (-2.5% y/y) and electrical machinery (-9.2% y/y) sectors - these figures represent the January to July period compared to the same period the year before. For July’s sectoral growth figures please see table 3.
  • While an interest rate cut of 25bp is expected in September as CPI inflation, and hence inflation expectations, moderate, interest rate cuts still will not lift SA out of its underlying weak growth trend.
Figure 2: Mining Production
Figure 3: Manufacturing output volume by industry type (%)