Manufacturing takes a knock

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Manufacturing took a knock in May, according to Statistics SA, with outputdecreasing by 3.7 percent year on year, led lower by a 15.9 percent decline in production of motor vehicles, parts, accessories and other transport equipment.

In addition, output of basic iron and steel, non-ferrous metal products, metal products and machinery fell by 6.8 percent, while beverage output was down 4.3 percent.

Kamilla Kaplan, a senior economist at Investec, said manufacturing contracted more than expected as the market had anticipated a decrease of 1.6 percent. “Moreover, a revision to the prior month’s data resulted in a deeper contraction in April, of 1.9 percent year on year instead of 1.5 percent.”

She explained that on a seasonally adjusted three-month basis, the contraction was 2.1 percent quarter on quarter which translated to minus 8 percent on an annualised basis.

“Although the June data is still outstanding, the contraction in manufacturing production is deeper than the 5.4 percent fall in the first quarter. A multitude of factors is responsible for the weak performance. At the forefront, the platinum sector wage strike suppressed manufacturing production owing to the various linkages.”

She added that exacerbating the effects of the strike had been the weakening momentum in domestic demand growth, the slow pick-up in export growth and insufficient electricity capacity.

The steel and engineering sector strike, which is in its second week, holds the potential to prevent a recovery in manufacturing production in the third quarter.

Henk Langenhoven, the chief economist of the Steel and Engineering Industries Federation of Southern Africa, painted a gloomier picture, highlighting that data for May showed an overall collapse of nearly 7 percent in production in the sector.

He said the latest piece of bad news came on the heels of the Kagiso purchasing managers’ index for June, “which indicated a further strong deterioration in business confidence since the beginning of the year… a trend which started in the third quarter of 2013”.

“The metals and engineering sector strike has materialised, the mining recovery will be slow due to the strike’s duration and construction shows no signs of revival,” he said.

However, Moses Mayekiso, the president of the Workers and Socialist Party, said the manufacturing sector accounted for 15 percent of the economy and after the strike, even if metalworkers won their wage demands, the sector would still account for 15 percent.

“All that will change is that a share of that 15 percent is going to the bosses as profits will be lower. The share going to the workers will be higher. The only reason that the manufacturing sector would shrink as a result of higher wages would be because of sabotage by the bosses.” – Business Report


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