The economic growth that manufacturers saw at the end of last year will be short-lived as mining output and manufacturing production fell in January.
The downfall of these two sectors was believed to be mainly caused by power cuts, which prevents the economy from getting off its feet and attempting to gain momentum.
Barclays economist Peter Worthington said that economic growth was likely to slow to 1.8% in the first quarter of this year, seasonally adjusted and compared with the previous quarter, after jumping by 4.1% in the previous quarter.
“We have cautioned that the strong Q4 GDP performance was very unlikely to be sustained. Today’s weak manufacturing and mining data lend some support to this view,” he told Business Times after Statistics SA released the figures.
Business Times also reported that manufacturing fell 1.5% in January compared with the previous month and 2.3% compared with that of the previous January, after notching up growth of 0.8% and 0.9% respectively in December. Markets had expected modest increases.
The manufacturing figures “will do little to allay concerns over the growth outlook. It remains uncertain in 2015, given power shortages, slow growth in key export markets, sharply lower commodity prices and generally subdued domestic demand,” Nedbank said in a research note.
Mining output fell 5.4% during the month and 4.7% compared with the previous January, the figures showed.
According to a key index released on by the Bureau for Economic Research and Rand Merchant Bank, “Business confidence dipped in the first quarter, mainly because of the mood in the manufacturing sector. It showed that manufacturing confidence plunged to 30 points from 42 points in the final quarter of last year.”
The survey backed the message from SA’s purchasing manager’s index earlier this month, which fell by a steeper-than-expected 6.6 index points to 47.6 in February. A reading above 50 indicates expanding activity, while a reading below 50 points to a contraction.
Another survey from the Manufacturing Circle showed that 81% of companies included expect fragile or weak to stable conditions over the next two years, compared with just 39% a year earlier.
Stanlib economist Kevin Lings told Business Times, “Manufacturing production declined by 0.1% over the whole of last year — despite the rand losing 30% against the dollar over the past three years. Clearly, rand weakness does not automatically translate into increased manufacturing production, especially when the sector is plagued by regular bouts of labour unrest and periodic electricity outages.”
Both Eskom and the government have warned that intermittent power outages are likely to continue for three years as the cash-strapped utility battles to maintain aged infrastructure and complete two new power stations, which are running well behind schedule.
This does not bode well for manufacturing as many companies, such as miners, are energy intensive.
The sector’s overall contribution to the economy shrank from 18.6% in 2004 to less than 13% late last year.
By: Kristy Jooste
Extracts from Business Times