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.
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“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.