Key economic data released last week showed that South Africa’s economy is headed for a deep recession in the second quarter of the year. The lockdown regulations implemented to curb the spread of COVID-19 have continued to impede manufacturing production output, although at a somewhat decelerated pace.
This has resulted in manufacturing production for the months of June and May decreasing by 16.3% year on year and 32.4% respectively. Steel and Engineering Industries Federation of Southern Africa chief economist Michael Ade said poor manufacturing output reflects the extensive impact of the Coronavirus on economic activity.
“These are unusual times for businesses and the current economic environment, underpinned by increasing operational costs and a volatile exchange rate, compelling businesses to be selfish in exploring ways of ensuring their survival before considering the interests of the broader industry,” Ade said.
The key mining sector also reported poor output data for the month of June. Mining production declined by 28.2% year on year compared to a revised downturn of 27.6% in May. Data from Statistics SA show that the largest detractor was platinum group metals (PGMs), which plunged 42.5% and shaved off a staggering 10.6 percentage points to the annual number.
Iron ore dropped 54.2% and “other” non-metallic minerals declined by 38.2%. FNB economist Geoff Nölting said the mining sector will likely continue to face headwinds, particularly in attracting greenfield investment due to electricity supply and cost constraints, among other bottlenecks.
Retail trade fell 7.5% from a year ago in June. The reading came worse than market expectations of a 3.6% decrease. The economy shrank shrank 2% in the first quarter. Stats SA is expected to release second quarter gross domestic product data next month.
It is is expected that the move to level 2 lockdown regulations would provide support to the ailing economy in the third quarter of the year.
