Mining slump affects South African economy

<p>The South African economy shrank by 0.6 per cent in Q1.</p>

A slump in mining activity has hurt the South African economy, which contracted during the first three months of the year.

Official data for the country's economy showed a slump of 0.6 per cent between January and March, with a slowdown in the nation's mining sector among the reasons for the drop.

Gold, diamond and platinum mining were all down and, as this is one of South Africa's most important industries, this had a major impact on the strength of the country's economy.

Razia Khan at Standard Chartered Bank told BBC News that the statistics for the nation's economic growth in the first three months of 2014 make for "grim reading".

He said: "Mining, hit by protracted industrial unrest, fell almost 25 per cent on an annualised basis. Manufacturing was down 4.4 per cent."

Platinum mining has been on hold in South Africa for the last five months as workers have gone on strike over pay and conditions. In turn, this has had an impact on the mining industry across the country and investors will be keeping a close eye on the price of precious metals in the near future to see if the strike action has an effect on the value of the commodities.

Strike talks

New South African mining minister Ngoako Ramatlhodi recently told Johannesburg's Talk Radio 702 that talks over a break in the platinum miners strike have broken down. He explained that discussions held between platinum mining companies and the striking Association of Mineworkers and Construction Union (AMCU) union came to a stop yesterday (May 27th), reports Reuters.

"The economy is almost knocking at the door of a recession and we should not allow that to happen to ourselves," he said. "The AMCU president has assured me they are doing everything possible to reach an agreement with the mining houses. South Africans are very reasonable people. I've no doubt that they'll find a solution."

Following the release of the official data for the South African economy in Q1 2014, the rand was down by about one per cent against the dollar to 10.44 rand.

High unemployment has had a stifling impact on the state of the South African economy in the last few years, with around 25 per cent of the nation's population currently looking for work.

Find out about commodities trading and learn CFD strategies at City Index

Build your confidence risk free
Join our live webinars for the latest analysis and trading ideas. Register now

StoneX Financial Ltd (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.