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South Africa's Manufacturing and Mining Output Contract, Slow Down Economy Even More

March 11
1:32 AM 2016

It's not a good start of the year for South Africa's mining industry as more mining sites shut down their operations.  The country's mining output dropped by 4.5% year-on-year in January said Statistics South Africa.  Slow economic growth has increased worries of the nation's credit rating could be slashed to sub-investment grade and demoralize investors concerned regarding how President Jacob Zuma handles the economy.

Compared to last year's estimated 1.3%, the Treasury claimed that South Africa's economy can grow by 0.9% this year, which could be the lowest growth rate since the country surfaced from the 2009 recession, according to Reuters Africa.

"The mining and manufacturing sectors collectively make up about half of South Africa's (gross domestic product), so this contraction in output is a very worrying sign," Capital Economics analysts said in a note.

South Africa's factory output declined 2.5% from a year before, the biggest decline so far since July 2014 that prompts a month long strike in the vehicle and car parts industry shutting down production, as reported by Bloomberg.

According to Jeffrey Schultz, an economist at BNP Paribas Securities, the information reflects a "combination of weak global demand dynamics, particularly from China, and the ongoing structural growth constraints that we have domestically. Effectively, the manufacturing sector is operating at recessionary levels."

The biggest recorded negative growth rate came from copper with -43.8%, followed by iron ore and diamond at -26.3% and -16.1% respectively.  From October last year to January this year, mining output reduced to 0.6% quarter-on-quarter.

Gold emerged as an important positive contributor sharing 3.1% points, Global Mining News reported.

Year 2016 might not be a good year for South Africa's mining and manufacturing output. Gold and diamond mines started to shut down their operations. Investors are worried the way President Jacob Zuma is governing the country's economic situation.

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