Johannesburg, 4 September 2018 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is concerned about the poor performance of the economy and the contribution of the broader manufacturing sector to economic growth.
Speaking after the release of the latest gross domestic product (GDP) figures by Statistics South Africa (StatsSA) today, SEIFSA Chief Economist Michael Ade said growth in the manufacturing sector was, notably, largely nondescript in an economic performance which recorded a second consecutive decrease in GDP growth in quarter two of 2018, technically plunging the economy into a recession.
South Africa’s real GDP decreased by 0,7% in the second quarter of 2018, following a seasonally-adjusted 2,6% quarter-on-quarter (q/q) decrease recorded in quarter one of 2018. The manufacturing sector’s performance was equally disappointing, with the sector contributing 0,0% to growth in GDP in the second quarter.
“South Africa is officially in a recession amid prevailing challenges. The difficulties remind us all of the fact that there remains much work to be done in order to revive a spluttering South African economy. Since the first quarter, consumer sentiment has remained weak, with the Bureau for Economic Research’s consumer confidence index slowing to 22 points in the second quarter of 2018, from 26 points in the first quarter, indicative of a subdued local demand environment, Dr Ade said.
He added that given that the demand for most of manufacturing goods is derived from a strong consumer demand base, the slowing consumer confidence is worrying. He said that the situation was worsened by low investment levels and the generally high unemployment rate which has seen most people still struggling to find jobs.
“The economy is still weak and, at 5,1%, the headline inflation is near the upper band of 6%, disproportionately affecting the poor. However, with inflation still within the target band, the likelihood that South African Reserve Bank officials will raise interest rates at their next scheduled meeting in two weeks’ time is low. Rather, the opposite is true in order to put money back into the pockets of consumers and boost demand,” Dr Ade said..
He added that the weak exchange rate presents the biggest challenge to businesses in the manufacturing sector, which is very crucial to the domestic value chain, with linkages to the primary and tertiary sectors. He said the consistent fuel price increase – with the next increase planned for tomorrow (Wednesday) – and the high cost of imported inputs by businesses bore testimony to the negative effects of the weak exchange rate. He also decried the negative impact of logistic costs and administrative bottlenecks, which inhibit exporting businesses from taking advantage of the weak exchange rate.
“The economy desperately needs a jump-start. Distressed companies should be assisted and policy makers should urgently and effectively implement existing initiatives and policies. Five months into its announcement, the modalities around a R500 million incentive aimed at assisting companies in the metals and engineering cluster is still awaiting finalisation, while businesses are in a quagmire. The laggard translation of policies to concrete implementation plans are a serious cause for concern,” said Dr Ade.
Dr Ade stressed that swiftness in policy implementation, monitoring and evaluation is necessary to instill trust in the Government and to boost both business and investor confidence.
“This is important, given that a flourishing manufacturing sector is important in revamping growth in GDP and creating more jobs,” he concluded.
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