The easing of containment measures in South Africa in September supported industrial activity, but the recovery remains sluggish. Leading indicators suggest that the pace of recovery waned further in Q4.
- The easing of containment measures in South Africa in September supported industrial activity, but the recovery remains sluggish. Leading indicators suggest that the pace of recovery waned further in Q4.
- Activity data published by Stats SA today showed that mining production fell by 0.3% m/m in September. In year-on-year terms, output contracted by 2.8% y/y following a 3.8% y/y drop in August. (See Chart 1.) The September outturn was weaker than the Bloomberg consensus forecast of -2.5% y/y. Figures released earlier in the week pointed to a stronger recovery in the manufacturing sector. In m/m terms, output rose by 3.2% which, in y/y terms, translates to a 2.6% y/y fall, after a 11.1% y/y drop in August. (See Chart 2.)
- The easing of South Africa’s lockdown in September probably gave a lift to activity. The country moved from lockdown level two down to one in late-September, allowing about 95% of the economy to reopen. Restrictions on industrial sectors have been lifted in earlier rounds of lockdown loosening.
- But even as production was ramped up in industrial sectors, output remains depressed. In September, neither manufacturing nor mining production levels managed to surpass levels seen in September 2019. Persistent problems at state-owned electricity firm Eskom probably weighed on industrial activity as well; electricity distribution remains weak. (See Chart 3.)
- More recent survey data were not as encouraging for the manufacturing sector as the headlines initially suggested and instead point to a waning recovery. Although daily new COVID-19 cases are low (see Chart 4), there are growing fears of another surge, at least in some provinces. That will further dampen sentiment that remains quite weak. Policymakers’ hands appear to be tied by the government’s weak fiscal position, neither the recovery plan nor the Medium Term Budget Policy Statement offered much in the way of support. If anything, austerity plans will weigh on demand and the economy will have to find a way out of the coronavirus-induced slump on its own.
Chart 1: Mining Production (% y/y)
Chart 2: Manufacturing Production (% y/y)
Chart 3: Eskom Electricity Sent Out (GWh)
Chart 4: South Africa COVID-19 Cases
Sources: Stats SA, Eskom, Johns Hopkins, Refinitiv, Capital Economics
Virág Fórizs, Africa Economist, email@example.com