Recession looms as South Africa's manufacturing, mining contract - CNBC Africa

Recession looms as South Africa's manufacturing, mining contract

Southern Africa

by Reuters 0

Recession looms as South Africa's manufacturing, mining contract. Photo: Wikipedia.

South Africa's manufacturing output resumed its decline and mining production contracted as weak global demand pushed the country's ailing economy closer to a recession.

Manufacturing production shrank 2 percent in March and mining output plunged by 18 percent - the most on record - figures from Statistics South Africa showed on Thursday.

"The economy is very weak, and with these set of figures, we're looking at the possibility of a contraction in the first quarter," said Dennis Dykes, the chief economist at Nedbank.

South Africa's economy grew 1.3 percent last year and 0.6 percent in the fourth quarter, and in its February budget, the National Treasury lowered its forecast for 2016 to 0.9 percent from 1.7 percent. The International Monetary Fund has cut its outlook for 2016 to 0.6 percent.

All three major ratings agencies have cited weak growth and policy upheavals as major risks to South Africa's investment-grade rating.

Last Friday, Moody's maintained the country's Baa2 rating but with a negative outlook. Fitch and Standard & Poor's rate the country's debt just one notch above sub-investment grade and are due to revisit the ratings in June.

"You go back to brass tacks and ask if government is sending the right signals when it comes to a stable policy environment. But you look at sectors like mining and agriculture and the policy environment there is terrible," Dykes said.

Last year, South Africa recorded its lowest annual rainfall since comprehensive records began in 1904, as an El Nino-driven drought ripped through the region, putting millions at risk of food shortages.

The government and mining companies have been deadlocked for years over proposed changes to the Mining Charter that will require the companies to keep black ownership at 26 percent.

South Africa, one of the world's biggest metals producers, has been hit by a slide in commodities prices that has come on top of widespread labour unrest among miners.

"We need to be cognisant that our mining sector is under pressure and that it's a global theme," said Elna Moolman, an economist at Maquire First Securities. "We need to look for alternatives. And given that we are very strong in the services, this is an area we need to focus on."

Moolman said an increased focus on tourism, which has already benefited from a weaker currency, and upping the export financial and business services would help lift the economy.

 

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