Nothing to celebrate in today’s data. The annual rate of decline in mining output slowed to 0.4 % in April, from 3.8 % in March. Meanwhile, manufacturing production rose by an unexpectedly large 7 % y-o-y in April, up a seasonally adjusted 8.4 % m-o-m, – after shrinking by a sharp 2.2 % in March. But when three-monthly data is considered, manufacturing is in decline, as our experts point out…….
Expert views:
Independent Economist and Analyst Ian Cruickshanks:
There was a strong 8.4% jump in the manufacturing data for March over February. However, a more accurate view of SA’s second-largest sector, contributing around 14% of national GDP, is shown in the fall of 1.9% in the 3 months to April over the preceding similar period. Manufacturing data has a relatively volatile short-term time series, but April’s release confirms expectations for a lower level of overall GDP growth in the SA economy in 2013, likely to fall to around 2% year-on-year, which is significantly below Treasury’s 2.7% target. It is clear there has not yet been a significant improvement in export volumes, despite the rand’s plunge this year.
Russell Lamberti from ETM:
The mining data only confirms that mining is a sclerotic sector that requires wholesale restructuring. The required restructuring has not yet begun, and until it does the mining industry will resemble a zombie more than a viable source of value. The job cuts required in mining are probably in the order of tens of thousands. Until this happens, shareholder value will keep being eroded. As for manufacturing, the jump in y/y production by 7.0% in April is a statistical anomaly due to Easter holidays, while the 8.4% seasonally adjusted jump m/m is due to an excessively weak March. Smoothing this out reveals the cold hard truth – manufacturing output is stagnant at best. The number to focus on is the change in real, seasonally adjusted quarter-on-quarter production, which fell 1.9%. The benefits some manufacturers may be feeling from a weaker rand will soon be discovered to be transitory when they realise it is creating an inflation firestorm that will drive up wage and imported capital costs. and strip their local customers of purchasing power – as prices rise for fuel and other key imported consumer goods. The industrial heart of South Africa is in big, big trouble.
Nedbank Economic Unit:
Despite April’s improvement in mining production, prospects for the mining sector remain poor. Poor global growth, generally weak commodity prices and difficult operating conditions in the local mining industry will continue to undermine the performance of mining production in the months ahead. In manufacturing, just like March’s unexpected fall, April’s surprising surge is partly due to seasonal factors, which have not been fully adjusted for, due to the fact that the Easter break fell mainly over the March this year, adding three more working days than last year to the month of April. The figure was also boosted by the return to production of a large steel foundry. The markets generally expected output to increase by a more subdued 1.2 % y-o-y. A more accurate indication of the underlying performance of the manufacturing sectors is captured by the quarterly figures, which shows that total output fell by 1.9 % over the three months to April compared with the previous three months. The manufacturing sector will continue to face subdued demand conditions. In the large export-orientated industries, output growth will be contained by recession in the Eurozone, a more measured Chinese economy and weaker international commodity prices. At the same time, costs pressures will remain elevated, with high electricity costs, rising unit labour costs and expensive transport and logistics. However, a weaker rand, if sustained, should help compensate for some loss of price competitiveness and shore up profitability. In the inwardly-focused industries, demand conditions will also be broadly softer. Slower growth in household spending and private sector capital outlays will probably contain the benefits of any acceleration in public sector infrastructure spending. Finally, there is the risk of renewed disruptions to power supply given winter maintenance at many power stations across the country. Consequently, another year of modest production growth is anticipated in 2013. Today’s mining and manufacturing production figures suggest that production and exports remained under pressure into the second quarter, making any significant improvement in the current account deficit unlikely and leaving the rand still very vulnerable. Given the mounting upside risks to inflation and persistent downside risks to domestic growth prospects, the MPC is still expected to keep interest rates unchanged until around the second half of 2014.
Coenraad Bezuidenhout, Executive Director, Manufacturing Circle:
April manufacturing production and sales figures released by Stats SA today shows the Manufacturing Circle was correct in its prediction that once past the first quarter growth shock (GDP growth stats showing a 0.9% year-on-year growth, with 1.2% decline in manufacturing’s contribution), the manufacturing sector would prove its resilience. While seasonally adjusted figures for the latest three month period still registered negative growth, we believe this will improve as we move further away from the first quarter, which saw a number of period-specific negative influences, amongst other, due to upstream industrial action and the shutting down of a steel mill and a liquid fuel gas plant. While volumes in lagging sectors (include electrical equipment, food products, furniture, textiles, transport equipment and wood products) still show strain due to lacking demand from export markets and weakening consumer demand, margin squeeze is being ameliorated by the weaker rand, allowing these manufactures to live to employ another day. Employment in the sector is expected to remain relatively stable in the foreseeable future. However, should the costs of ongoing industrial peace and utility services continue to escalate, the comparatively low cost of capital could increase the lure of mechanisation for some employers.
Conclusion:
We have very low interest rates and a weak currency, but still neither mining nor manufacturing is flying. Let’s see what tomorrow’s retail sales numbers tell us.
Tweets of the Day:
Michael Jordaan (@MichaelJordaan): Blind tasting some wines tonight. Not ’cause I really want to. It’s just what happens without electricity.
Barry Hilton (@barry_hilton): New legal ages: a 16yr old can drive to his 12yr old girlfriends house and have sex but they can’t have a drink and a smoke afterwards (?)
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