Economic sensitivity nexus and the minerals industry

This paper analyses the sensitivity nexus between the minerals industry and the aggregate economy to changes in macroeconomic indicators in South Africa. This is achieved by augmenting a Taylor (1993) type central bank monetary policy reaction function with selected macroeconomic indicators and comparing the reaction of the minerals industry and the aggregate economy to changes in these macroeconomic indicators. The results provide evidence of a statistically significant higher sensitivity of total output to an unexpected, or surprise, increase in monetary policy interest rate, compared to output of the minerals industry. The results further show a lower sensitivity of total output to an unexpected, or surprise, increase in government expenditure, commodity prices, foreign exchange rate, foreign direct investment, financial market, business confidence, business confidence and market uncertainty, compared to output of the minerals industry. The results finally show mixed sensitivity of total, or economy wide, output to an unexpected, or surprise, increase in geopolitical risk and external, or foreign, demand, compared to output of the minerals industry. The fluctuations in various macroeconomic indicators are important for aggregate economic activity, hence policymakers should monitor developments in macroeconomic events to support economic growth and the minerals industry.