JOHANNESBURG, 12 OCTOBER 2020 – The latest production data for the manufacturing sector released by Statistics South Africa today reflects the resilience of the Metals and Engineering (M&E) cluster of sub-industries on a month-on-month basis, said Steel and Engineering Industries Federation of Southern Africa Chief Economist Michael Ade.
However, he said, the figures painted a worrisome annual trend as the recession deepened amid the COVID-19 pandemic.
Dr Ade said although the seasonally-adjusted monthly manufacturing output data had surprisingly continued to trend in positive territory from May, underpinned by improving business sentiment, the presence of headwinds from the months of the COVID-19-induced economic lockdown, the fear of contagion, a generally weak exchange rate and a stubbornly stagnant economy had led to poor year-on-year data.
“Nevertheless, the official monthly output statistics released today are still better than those of April, May and June, and provide a light at the end of the tunnel for beleaguered businesses during these tough economic times characterised by unease and uncertainty,” Dr Ade said.
According to the data, unadjusted manufacturing production decreased on an annual basis by 10,8% in August when compared with August 2019. The largest contributors to this decrease year on year in the M&E industry were the motor vehicle parts, accessories and other transport equipment sub-industries, which recorded -30.6%, followed by the steel, metals and machinery sub-industries which also recorded -11.7%. The annual performance of the sub-industries was generally in line with broader manufacturing production, which also decreased.
Dr Ade said it was, however, encouraging to note the auspicious month-on-month performance of manufacturing output, which forms a firm basis to build on and further improve business activity
He noted that the improvement in monthly manufacturing output was generally good for local businesses going into the festive season as they could make up for financial losses from the lockdown through improved sales and profits. This was generally reflected in the seasonally-adjusted data.
Dr Ade called on indigenous businesses to take advantage of improving business sentiment among purchasing executives after the economic lockdown, as well as firming selling prices, to further enhance margins and ensure their sustainability, which would come with positive implications for existing jobs.
He said this was important as the current subdued domestic demand was likely to increase volatility in manufacturing production in the near future. Additionally, the expectation was for the broader manufacturing sector, including the cluster of M&E sub-industries, to position itself to benefit from a possible uptick in domestic demand during the last quarter of 2020 as all industrial sectors progressively opened up.
“The continuous improvement in manufacturing output and consequently domestic demand in the medium to long term will depend – among other factors – on the rapid implementation of both the Steel Master Plan and the Presidential Infrastructure Plan, with spill-over benefits to the metals and engineering industry,” Dr Ade concluded.
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