A recovery in mining GDP during the third quarter of the year, after quarterly declines in the previous two quarters, was still unable to lift overall real GDP in the July to September quarter, industry organisation Minerals Council South Africa says in a statement.

Against the Bloomberg financial market consensus for real GDP to increase by 0.4% in the third quarter (the Minerals Council expected growth of 0.3%), overall real GDP declined by 0.3%, it points out.

The third-quarter contraction follows a downwardly revised second-quarter real GDP growth of 0.3%. The second-quarter print was initially reported at 0.4%.

At first glance, the third-quarter GDP contraction is a setback to the narrative that the positive sentiment stemming from the Government of National Unity (GNU), the absence of loadshedding and household withdrawals linked to the two-pot retirement system would lift growth momentum in the second half of 2024 and into 2025, the council states.

The Minerals Council expresses its concern that the quarter’s outcome is exacerbated by the fact that value added, a measure of output, declined in four of the ten major sectors.

However, it highlights a notable mitigating factor was that overall real GDP decline was largely owing to a shock contraction in the agricultural sector.

As a result, agriculture reduced real GDP growth by 0.7 percentage points during the quarter.

“By some distance, the weakness in agriculture was the biggest driver behind the GDP contraction. Indeed, if we exclude agriculture from the GDP figures, the economy grew by 0.4% in the third quarter, which was largely unchanged from non-agricultural real GDP growth of 0.5% in quarter two 2024,” Minerals Council points out.

For the mining sector, higher chrome and manganese output drove the rise in mining GDP during the quarter.

The rise in mining boosted real GDP by 0.1% points.

While positive, it was not enough to compensate for the negative GDP contribution from agriculture.

The other sectors where value added declined in the period were trade (mainly wholesale and retail), transport and general government.

The Minerals Council avers that, based on the first three quarters of the year, there was more positive news for mining, with value addition in the sector increasing by 0.7% year-on-year compared to the corresponding period in 2023.

“This shows some improvement after real mining GDP contracted by 0.5% in 2023,” it highlights.

However, the outcome was less positive for mining profitability.

Stats SA’s gross operating surplus numbers, which include the impact of price changes and provide a broad measure of profits in the major sectors of the economy, indicated that mining sector profits declined by 0.9% year-on-year in the first nine months of 2024, the Minerals Council points out.

Conversely, profits in the non-mining sectors increased by 5.8% year-on-year during the corresponding period.

OUTLOOK
Real mining GDP this year looks set to post the first increase for an entire calendar year since 2021, the Council asserts.

However, growth is expected to be modest, at between 0.5% and 1%, while mining profitability remains under pressure.

Some lift in profits is only expected once platinum group metals (PGM) prices start to rise from current depressed levels.

There has been more optimism of late that this could be imminent as constrained PGM supply growth in South Africa and some uptick in global PGM demand from the global vehicle industry should lift sentiment and prices, the Minerals Council highlights.

A risk to this view is if incoming US President-elect Donald Trump undermines global trade growth by launching another trade war with key countries/regions such as China and Europe, it warns.

In terms of overall real GDP growth this year, the third-quarter decline is expected to result in a downward revision to growth forecasts.

“Even assuming a solid rebound in quarterly growth during the fourth quarter, full year real GDP growth of around 0.5% now seems likely. Assuming no revisions to the historical data, this would mean a further slight easing in the annual growth momentum from the 0.7% recorded in 2023.

“It also means that we will need to wait for 2025 before the real benefits from the absence of loadshedding, increased confidence (assuming it is sustained), as well as lower inflation and interest rates, start to kick in. Much-needed further progress on lifting the tonnages transported by Transnet will also assist in driving faster mining and overall real GDP growth in future,” the Minerals Council states.