Johannesburg, 8 November 2018 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) today laments a third consecutive decrease in output of the broader manufacturing sector – including its diverse metals and engineering (M&E) cluster of industries – for September 2018, underpinned by a difficult operating environment and a worryingly low domestic demand.
Speaking after the release of manufacturing production figures by Statistics South Africa (StatsSA) today, SEIFSA Chief Economist Michael Ade said the manufacturing sector has generally been facing headwinds since the start of the year, characterised by declining business and consumer confidence.
“Although production data in the sector is still positively trending, the data has consistently declined from July 2018. Moreover, corresponding increases in fuel prices, a weaker rand and higher prices of both intermediate and final input have increased operational costs, also depleting existing margins,” said Dr Ade.
He said the output performance in September, which officially closes off quarter three of 2018, is perturbing, especially considering that domestic demand is generally subdued as a result of the economic recession and a volatile exchange rate. He said it was clear from the data that the positive sentiments following the stimulus plan recently outlined by President Cyril Ramaphosa has yet to filter through to the manufacturing sector and the M&E cluster.
“Consequently, the general contribution of the sector to the Gross Domestic Product in quarter three will be lower than expected, especially considering that the benefits from outlined stimulus interventions will only become effective with a lag,” said Dr Ade
The latest preliminary seasonally-adjusted data capture a decrease in production in the broader manufacturing sector in September 2018 when compared with August 2018. On a continuous three-monthly basis, output in the manufacturing sector decreased consecutively from 2,7% in July 2018, to 1,5% in August 2018 and 0,1% in September 2018.
Dr Ade said the poor performance in September 2018 was expected, following the recent release of deteriorating data for the purchasing managers’ index (PMI), which dipped to almost a decade low of 42,4 index points. The composite ABSA manufacturing PMI data for October effectively signalled a fourth successive decrease from July, further trending away from the 50-point benchmark level which separates expansion from contraction in business activity, thus triggering new concerns about the state of the economy.
“SEIFSA encourages businesses to stay resilient in the face of the current adversity characterised by volatile production, high unemployment levels, a trade deficit and subdued domestic demand, as policy makers implement measures to help the economy navigate the trough,” Dr Ade concluded.
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