SEIFSA Chief Economist Henk Langenhoven said that the metals and engineering sector will almost certainly contract when 2014 is compared to 2013, with growth dropping from 3,5% by the end of May to 0,8% by the end of June, and -3,5% by end of July.
“These numbers reflect the short-term effect of the production disruptions. The medium- term implications for employment could be as detrimental, either through lay-offs or through capital intensification, which would be a reversal of declining capital intensity in recent years,” Mr Langenhoven said.
The longer-term impact on production capacity will be driven by several factors, namely:
- The negative effect on already-low profit margins will cause company casualties;
- Fixed investment in the sector has suffered a further blow after 16 years of declining investment-to-output ratios;
- The damage to confidence in the sector as secure suppliers to international customers will only show in time, with the possibility that the sector could lose exports which represent 60% of its market.
The inter-relationships amongst metals and engineering and the motor vehicles, parts and accessories and other transport equipment sectors is very evident, with production in the latter two declining by nearly 30% on June numbers.
“Taking into account the sub-industries most affected, one also understands the shortages developing in the construction sector over the period. The three sectors combined were responsible for 7% of the 7,9% drop in manufacturing output,” Mr Langenhoven said.
The following were the worst hit sub-industries within the metals and engineering sector in July:
“SEIFSA has previously stated that the third-quarter performance of the sector may not be much better than it was in the first half of the year. This will depend on accelerated production in August and the pace of recovery, as well as the statistical base effect. The labour unrest was the last thing the sector needed,” concluded Mr Langenhoven.