The annualised rate of change in the metals and engineering sector production now stands at -4,4% (minus 4,4%), judged by the latest (May) numbers released by Statistics South Africa on Tuesday, 12 July 2016.
“This is dismal by any yardstick. The year to date (January to May) production declined by 4,8% on the same period last year, against our expected number of a 3% contraction this year,” said Mr Henk Langenhoven, SEIFSA Chief Economist.
Mr Langenhoven said that going back to 2013, the average year-on-year contraction was 1,6%. Looking at month-on-month data, the pattern appeared to be one of a month of growth followed by two months of contraction, losing the previous gains, with May recording 1% growth.
He said that the Federation had previously cautioned about the sustainability of a recovery, concluding that the growth in production experienced in February could be explained by inventory rebuilding by companies, after a low point was reached in December 2015.
“The massive job losses recorded in the sector during the first quarter of 2016 (-9 012) cast further and serious doubt on a sustainable recovery from now on. The cumulatively worse job losses, totalling 15 553 over three quarters (or nearly 4% of the workforce), does not bode well for recovery,” says Langenhoven.
Mr Langenhoven said monthly production improvements would have to continue over a broad level in the different sub-industries in the sector to result in a change of fortune. This is not the case at present:
- In May the production of structural metal (+10%), rubber (+9%), basic iron and steel (+4%), other fabricated metals (+3%) and plastic products improved;.
- In the first five months of the year only electrical machinery and equipment (+8%) improved their production, with the biggest losers being household appliances (-21%) and machinery (-8%);
- Over 12 months only electrical machinery and rubber production grew, with all the other sub-industries shrinking.
Mr Langenhoven said that it was of extreme concern that production declines over each comparative period occurred at a faster rate than the number of jobs lost during those periods. He said this indicated that job losses may accelerate further during the year.
Mr Langenhoven said that sustained improvement in economic conditions (mining, construction, automotive and exports) was necessary to reverse the downward trend in the sector and that the production data released this week did not change the Federation’s view that recovery will only be felt towards the end of 2016, if not around the middle of 2017.
“The metals and engineering sector remains in critical condition and it seems as if the patient will suffer a serious setback over the next six months before improvements can be expected,” Mr Langenhoven said.