JOHANNESBURG - Fitch Solutions, a subsidiary of Fitch Ratings on Friday said that it expected the manufacturing and agricultural sectors to continue being in the doldrums this year.
Fitch Solutions in a research note said that while the agriculture sector might surprise on the upside from rising domestic demand, it would still struggle to make headway.
“On the other hand, the sector faces a number of downside risks, including the possible re-emergence of the El Niño weather phenomenon – traditionally associated with below-normal rainfall in South Africa – and continued uncertainty over land reform,” Fitch said.
Uncertainty over land reform has hurt confidence in the sector.
The sentiment in the sector remains subdued as shown in a consistent deterioration in the Agbiz/IDC Agribusiness Confidence Index, which fell to the lowest level in nine years in the fourth quarter of 2018
Wandile Sihlobo, Agbiz head of Agribusiness research, said while the agriculture rebounded on the third quarter of 2018, growing by 6.5 percent on a quarter-on-quarter, the sector was not out of the woods yet.
“The benefit of the recovery in the Western Cape’s weather conditions could provide a buffer in the sector in the first quarter of 2019. But, the overall annual performance will largely depend on weather conditions in the summer rainfall areas,” Sihlobo said.
Fitch Solutions also said the troubles plaguing ailing state-owned power Utility Eskom would put a further strain on the manufacturing sector, which has seen its contribution to the gross domestic product (GDP) dwindle in the past two decades.
The sector has also shed jobs at an alarming speed, with last year being one of its most difficult years to date.
“Power parastatal Eskom was forced to implement load-shedding in mid-November – the first instance of load-shedding caused by power supply shortages in more than two years – and the continuance of scheduled power outages is likely to constrain manufacturing and mining in the short term,” Fitch Solutions said.
The manufacturing sector has also seen external demand come under pressure as South Africa's largest export destinations, the US and China engaged in a trade war in 2018 which threatens to resume this year.
In December US-China agreed to halt further tariff increases for 90 days, pending trade negotiations.
Fitch Solutions warned that a re-escalation in trade tensions between the world’s two biggest economies was likely to dampen economic growth in both countries, limiting demand for South African goods.