File image: IOL

JOHANNESBURG - Latest production data for the metals and engineering sector released by Statistics South Africa confirm fears that output in the sector contracted despite the slight up-tick recorded (2,5%) in real gross domestic product (GDP) in the second quarter of 2017.

This is according to Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Chief Economist Dr Michael Ade.

“It is clear that the increase in real GDP in the second quarter of 2017, following a decrease of 0,6% in the first quarter of 2017, was not felt in the manufacturing sector in general and in the metals and engineering (M&E) sector in particular.  July 2017 production in the M&E sector decreased by nearly 3% on June 2017, in line with the broader Production Manufacturing sector decrease of 1.4% in July 2017 when compared with July 2016,” Dr Ade said.

He said this highlighted the lack of productivity growth in metals and engineering, giving further indication that the benefits of improving domestic demand were notyet felt in the sector. The Bureau for Economic Research’s (BER’s) manufacturing index fell from 46.7% in June 2017, to 42% in July 2017 in line with tough expectations. 

Although the index showed a slight improvement in confidence (44,0%) in August 2017, it was still below the required 50% confidence level, he said.

The monthly business activity output sub-index of the PMI also declined further to 39,3% in July 2017 from 45,4% in June. Intermediate goods prices eased to 1,5% year on year in July, from 2,1% year on year in June 2017.

Read also: DA responds to 2.5% GDP growth

“Although capacity utilisation improved in the M&E sub-component in Q2 2017 to 80% (against a sectoral benchmark of 85%), real fixed capital stock decreased by 4%, largely affected by an initial under-utilisation of capacity in the start of the year, also impacting negatively on productive capacity.

“Even though there was growth in fixed capital productivity (4.42%) and multi-factor productivity (2.27%) signifying efficiency in utilising available factors of production, gross fixed capital formation or new investment within the sector declined by 8%, underpinned by low demand and growth. However, there is hope for a reversal of these trends in the third half of 2017, pending a rebound in business confidence index amidst anticipation of an improving growth scenario,” Dr Ade said.

He said that although the current expansionary monetary policy stance would help in improving consumer confidence, general concerns regarding political uncertainty would remain until after the ANC’s 54th National Conference in December.

“Generally, indications are that the metals and engineering sector is still under tremendous pressure stemming from structural problems, increasing input costs, low international commodity prices and poor export competitiveness. These and other relevant dynamics of the industry will be discussed in the upcoming M&E indaba scheduled for the 14th and 15th of September 2017,” he said.