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By 9th Nov 2015Sep 20th, 2019No Comments

This has been a strain on South Africa’s actual economic growth and raises questions about whether the economy is not headed for a recession, the Steel and Engineering Industries Federation of Southern Africa said today. SEIFSA Chief Economist Henk Langenhoven said that the latest manufacturing capacity utilisation data indicate that the situation worsened to 5% below optimum during the third quarter of 2015, which turned out to be the worst of the three quarters this year.

Mr Langenhoven said that, read in conjunction with the latest electricity production figures also released last week, a similar deteriorating trend was observed for the third quarter. The three-month average electricity production fell by 1,3% during the second quarter, which was exactly the same as the decline in gross domestic production (GDP) in that quarter.

“The latest data show an average contraction of 1,9% for the third quarter. This is very concerning in light of the imminent release of GDP numbers for the third quarter,” Mr Langenhoven said.

A similar, deteriorating third-quarter trend was evident in the overall Barclays purchasing managers’ index (PMI). Mr Langenhoven remarked that although over the first 10 months of the year the PMI was 2% higher than during the same period in 2014, the data seem to indicate that conditions have deteriorated since the middle of 2015. The seasonally-adjusted overall index declined by 3,6% in October compared to September 2015, and by 3% on October 2014, he said.

In comparison to manufacturing, the metals and engineering sector capacity utilisation was at nearly 10% below optimum, and has also deteriorated by 2% when the first three quarters of 2015 are compared with the first three quarters of 2014. Capacity utilisation during the third quarter of 2015 was even lower (-4,2%) than that during the strike-affected third quarter of 2014.

Looking for signs of possible improvement into the future, the business activity sub-index of the PMI is useful as it leads actual metals and engineering production by one- and-a-half years. For the first 10 months of 2015 compared to 2014, this indicator improved by 5,5%.

Over a 12-month period the improvement was 4,5%. Both these comparisons show the base effect of the 2014 strike and electricity disruptions. Mr Langenhoven said that, looking closer at the trend followed by the business activity sub-index since July 2015, it revealed a near-10% decline to October.

He warned that if this pattern continued, recovery in the metals and engineering sector would be postponed further to the end of 2016, contrary to earlier expectations. “The metals and engineering sector represent 28% of manufacturing and has been in recession since the middle of 2014.

The current data show little evidence of recovery. Manufacturing has had two quarters of decline since the fourth quarter of 2014, and the latest data releases also indicate a third-quarter decline.

This may indicate that the overall economy will also be in recession when third-quarter data are published,” Mr Langenhoven concluded. SEIFSA is a national Federation representing 27 independent employer associations in the metal and engineering industries, with a combined membership of over 2 000 companies employing over 200 000 employees.

The Federation was formed in 1943 and its member companies range from giant steel-making corporations to micro-enterprises employing fewer than 50 people.  

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