JOHANNESBURG, 10 OCTOBER 2017 – The preliminary August 2017 production data for the metals and engineering (M&E) sector released by Statistics South Africa today reflects an increase in output for the sector, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Chief Economist Michael Ade observed.
Dr Ade said production for the sector increased by 10.7 percent on a year-on-year basis (after adjusting for the sectoral weights, following a poor annual performance in July 2017). The sub-sector also performed well on a month-on-month basis, recording a growth of 4.2 percent in August 2017 compared to July 2017. He said that generally the increase in production in August 2017 in the M&E sector is in line with the broader manufacturing production increase of 1.5 percent on a year-on-year basis, following a revised annual growth rate of -1.1 recorded in July 2017.
“The positive performance of the sector in August 2017 was mainly boosted by higher production by the special purpose machinery, the basic iron and steel products, and the basic non-ferrous metal products. This is good news for the M&E sector, which is beginning to show signs of a long-awaited recovery,” Dr Ade said.
He said that as companies in the sector start to increase capacity in anticipation of a further improvement in domestic demand, the increase in momentum will help boost growth and further attract new investment.
Dr Ade said this outcome also aligned with forward-looking indicators for the industry. He noted that the South African Chamber of Commerce and Industry (SACCI) Business Confidence Index (BCI) rose to 93.0 percent in September 2017, from 89.6 percent in August 2017 and 95.3 percent in July 2017. Also, he noted that the Bureau for Economic Research’s manufacturing index rose to 44.0 percent in August 2017 from 42 percent in July 2017, in line with the increasingly optimistic outlook.
“However, although the index shows a slight improvement in confidence at 44,0 percent in August 2017, it is still below the required 50 percent required confidence level,” said Dr Ade.
He added that a further improvement in the monthly business activity (output) sub-index of the PMI and a continuous increase in consumer confidence were expected. However, he cautioned that although there is an increase in production, the concerns and challenges of the M&E sector still remained.
“The sector is still under tremendous pressure stemming from structural problems, increasing input costs, low international commodity prices (although still higher than the 2015 lows) and poor export competitiveness. Despite the improvement in trade balance, there is still a need to enhance exports and further boost business confidence in the sector in order to accelerate economic growth,” Dr Ade concluded.
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SEIFSA is a National Federation representing 23 independent employer Associations in the metals and engineering industries, with a combined membership of 1600 companies employing around 200 000 employees. The Federation was formed in 1943 and its member companies range from giant steel-making corporations to micro-enterprises
employing few than 50 people.