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SEIFSA Welcomes SA’s Exit From Recession And Urges Businesses To Capitalise On Improving Demand In Order To Expand

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Johannesburg, 4 December 2018 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes South Africa’s official exit from a technical recession in the third quarter of 2018, and urges businesses to capitalise on improving local demand in order to expand.

South Africa’s real GDP increased by 2,2% in the third quarter of 2018, following a revised seasonally-adjusted 0,4% quarter-on-quarter (q/q) decrease recorded in quarter two of 2018. The broader manufacturing sector’s performance was equally encouraging, with the sector significantly contributing to growth in GDP in the third quarter.

Speaking after today’s release of GDP numbers, SEIFSA Chief Economist Michael Ade said the biggest concern often raised by stakeholders in the broader manufacturing sector as a stumbling block to expansion, profit and job creation is that of stagnant or poor demand. Dr Ade said although other documented constraints still prevail, the overriding challenge is that of lack of demand, with poor local demand often cited by businesses as the main reason for their increasingly turning to regional African and global markets for sales, despite the additional logistic costs involved.

“The improvement in GDP growth is, therefore, encouraging as it provides a platform for local businesses to be inward looking, against the backdrop of an improved demand for their intermediate and finished products,” Dr Ade said.

However, he warned that although South Africa has officially exited the recession, challenges still prevail. Although the improvement in growth signals a step in the right direction, the economy and businesses are still under duress characterised by high intermediate and operational costs, poor ratings from Fitch and S&P (which still rate South Africa’s debt at sub-investment grade or junk status), vulnerability to investor sentiments and poor business and consumer confidence.

He said much work still needs to be done to revive a stuttering South African economy and support industrial growth and expansion. For this to happen, Dr Ade said urgent intervention is needed to prevent the recent electricity blackouts from spiraling out of control as the ripple effect from load shedding will inevitably place businesses under duress, discourage investment and impact negatively on company output and economic growth. Accordingly, the Government needs to continue with identified reforms in beleaguered State-owned enterprises (SOEs), while also containing high debt levels.

“The SOEs and municipalities, through their designation for localisation imperatives, are important parts of a kaleidoscope of end-users which are very key to the survival of the manufacturing sector, including its diverse metals and engineering cluster of industries. Therefore, the SOEs and municipalities need to be in good shape in order to continuously sustain positive GDP growth projections and demand levels and boost expansion in industrial production,” Dr Ade said.

He added that the support of these institutions is important for continuous improvement in manufacturing, especially considering that manufacturing is amongst the sectors which contributed positively to the lift in third-quarter GDP growth momentum.

Dr Ade said although the manufacturing sector seems to be slowly regaining its influence, underpinned by repeated recording of positive monthly output figures since April 2018, it still needs more support.

Going into the new year, Dr Ade said some signs of green shoots which are necessary to kickstart the economy are evident for businesses to capitalise on and move to the next level of growth. He observed that the weak rand-to-dollar exchange rate which presented the biggest challenge to businesses in the manufacturing sector has strengthened, fuel prices have temporarily slowed (with a possible breather on logistic costs), and the PMI rebounded to 49,5 index points in November, representing the first increase after three consecutive months of declines and the best performance  since July 2018.

“Above all, domestic demand – which is the most important and sustainable driver of growth for the manufacturing sector, irrespective of Government incentives or protectionism – has improved and stakeholders are very hopeful,” he said.

In conclusion, Dr Ade said SEIFSA is also hopeful about constant improvement in GDP growth, but re-iterates the need for more swiftness in policy implementation and consistency in monitoring and evaluation of relevant interventions in order to maintain the positive growth trajectory.

SEIFSA is a National Federation representing 21 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 fewer than 50 people.
Business Stability

SEIFSA Encouraged By Improvement In Broader Manufacturing Purchasing Managers’ Index

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Johannesburg, 3 December 2018 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes the improvement in overall business activity in the broader manufacturing sector, as reflected in the ABSA Purchasing Managers’ Index (PMI) released today.

As a lead indicator and the first data point that is published for the preceding month, the PMI sets the tone for how manufacturers and various stakeholders in the broader manufacturing sector view the month ahead.

The headline PMI data released today improved from 42.4 percent in October 2018 to 49.5 percent in November 2018, placing the PMI data virtually on par with the 50-neutral level which separates expansion from contraction.

“The rebound in the data is encouraging. Despite low business and consumer confidence, it seems that manufacturing activity is generally improving, albeit rather slowly and still under pressure,” SEIFSA Economist Marique Kruger said.

She added that it was also encouraging to note that almost all the sub-indices improved in November 2018 vis-à-vis October 2018, with the new sales orders, inventories and suppliers’ performance trending in expansionary zones.

The only blip in the performance of the sub-indices was that of the employment sub-index, which still trends in the contractionary zone and seems to have taken a knock in November 2018 when compared to October 2018.

Ms Kruger said SEFSA remained hopeful that the increasing trend in the sub-indices would continue and eventually improve the composite seasonally-adjusted PMI for December 2018.

“Progression in the PMI is important towards boosting overall economic activity for quarter 4 of 2018, also enabling businesses to start the year 2019 on a positive note,” Ms Kruger concluded.

SEIFSA is a National Federation representing 21 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 companies to micro-enterprises employing fewer than 50 people.

Companies Unlikely To Benefit From Rising PPI For Intermediate Manufactured Goods Unless Inflation Eases Further, Says SEIFSA

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Johannesburg, 29 November 2018 – Businesses in the metals and engineering (M&E) cluster are unlikely to benefit from a continuous increase in the selling price inflation in October 2018, given the current domestic economic environment underpinned by high petrol prices and an up-tick in both the prime interest rate and inflation, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.

Speaking after today’s release of Producer Price Index (PPI) figures by Statistics South Africa (StatsSA), SEIFSA Chief Economist Michael Ade said the latest release shows the annual percentage change in the PPI for final manufactured goods was 6,9% in October 2018, compared with 6,2% in September 2018. The data also shows a less-than- proportionate increase in the PPI for intermediate manufactured goods, considered a proxy for selling price inflation, from 7,7% in September 2018 to 7,4%. From September 2018 to October 2018, the PPI for intermediate manufactured goods increased by 1,0%.

However, Dr Ade said it is worrisome to note that notwithstanding the improving trend in selling price inflation for intermediate manufactured goods, companies are still constrained by derived logistics costs from high fuel prices and the double whammy of rising prices and higher prime interest rate.

“As captured by recent official releases from StatsSA and the South African Reserve Bank, the headline CPI correspondingly increased from 4,9% in September 2018 to 5,1% in October 2018, alongside the interest rate which increased from 6,5% in September to 6,75% in October. These dynamics definitely have the potential of compounding the dire situation of most businesses. The bigger concern is the direct impact on the depleting margins of companies, with dreadful extended socio-economic consequences on the broader economy,” Dr Ade said.

He said the direct transmission effects of the negative shocks arising from inflation, high costs of servicing existing loans and from snowballing borrowing costs from the financial service providers will impact negatively on consumer demand, thereby reducing the ability of producers to increase selling prices.

Dr Ade said that given that most of the intermediate goods produced in the M&E cluster are further utilised in the production of final manufactured goods which are largely consumed by domestic consumers, the reverse knock-on effect on the M&E cluster will be huge. He said the sharp deterioration in both the consumer and business confidence indices, as captured by the FNB/BER confidence indices, was equally of concern. .

The data reflect consumer confidence dipping from 22 in the second quarter to 7 in the third quarter of the year, while business confidence also fell from 40 in the second quarter to 34 in the third quarter. The bleak picture is further corroborated by the poor performance of the Absa business expectation index, which slowed down from 45,8 in September to 41,7 in October, in the midst of a technical recession and low domestic demand.

Dr Ade said that the lack of demand will invariably affect the speed with which intermediate manufactured goods leave the factories, steel mills, foundries, smelters and warehouses.

“Also, given the direct correlation that exists between changes in the PPI at the retail level (finished goods) and consumers at the point of sale, increases in both inflation and the cost of borrowing will adversely affect the speed at which manufactured goods are sold. Given these constraints, businesses are unlikely to benefit from prevailing increasing selling price inflation as it becomes difficult to pass price increases on to the final consumers continuously,” Dr Ade said.

In conclusion, Dr Ade pointed out that the PPI for the final and intermediate manufactured goods are important drivers of consumer demand. He said both indicators also generally act as a preview of changes in the rate of inflation.

Dr Ade cautioned that, in analysing both trends, businesses should also give significant consideration to other drivers of consumer spending.

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 companies to micro-enterprises employing fewer than 50 people.

Reserve Bank’s Decision To Hike Interest Rates Is Disappointing, Says SEIFSA

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Johannesburg, 22 November 2018 –  The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is extremely disappointed over the South African Reserve Bank’s (SARB) decision to hike interest rates by 25 basis points to 6.75 percent, and is concerned that this decision deprives a very weak economy of a much-needed boost.

Speaking after the announcement by the Reserve Bank this afternoon, SEIFSA Economist Marique Kruger said the failure of the SARB’s Monetary Policy Committee to leave interest rates unchanged, at the very least, is disappointing for beleaguered business and over-indebted consumers, especially in the run-up the festive season.

However, Ms Kruger said that given the upside risks that an accommodative monetary policy stance would have on the domestic economy’s inflationary outlook, the decision is understandable. She said it was unfortunate that businesses in the broader domestic economy – and  the metals and engineering sector in particular continues to face headwinds, amid increasing operational expenses.

“The generally weaker exchange rate and the higher petrol price impact negatively on the cost of doing business, while increased inflationary pressures caused by an increase in annual consumer price inflation exacerbate the challenging situation,” said Ms Kruger.

She said that given the current state of the economy and the weak domestic demand environment, the decision to increase interest rates will invariably add to the cost of doing business, thereby impacting negatively on the margins of struggling businesses.

 

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 companies to micro-enterprises employing fewer than 50 people.
A Third Consecutive Decrease

SEIFSA Concerned About Increase in Inflation Rate

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Johannesburg, 21 November 2018 – The increase in the official inflation number released by Statistics South Africa (StatsSA) today does not bode well for hard-pressed businesses in the Metals and Engineering (M&E) cluster, which continue to face headwinds amid low levels of domestic demand, a generally weaker exchange rate and increasing operational expenses, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today.

According to the StatsSA data, the annual Consumer Price Inflation (CPI) increased to 5.1 percent in October 2018, from 4.9 percent in September 2018. The index also registered an increase of 0.5 percent on a month-on-month basis in October 2018.

“An inflationary environment will definitely add to the pressure that local businesses are facing, given its direct impact on consumer demand for goods. Moreover, the generally high petrol price invariably adds to businesses’ logistics costs, and this, in turn, negatively impacts on the cost of doing business. The increase in inflationary pressure is a huge challenge for companies trying to improve on operational efficiency and margins,” SEIFSA Economist Marique Kruger said.

She added that with the official inflation data now trending even closer to the upper band of the South African Reserve inflation target of 3% to 6%, SARB Monetary Policy Committee members find themselves in a difficult position when they meet tomorrow.

“The decision on whether or not to continue with an accommodative monetary policy stance will be a fiercely contested one, given the official mandate of the SARB to contain inflation from galloping away,” said Ms Kruger.

She said that given the current state of the economy, leaving the repo rate unchanged will help in reducing borrowing costs, thereby providing impetus for a rebound in domestic growth.

SEIFSA is a National Federation representing 23 independent employer. Asociations 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 companies to micro-enterprises employing fewer than 50 people.
A Third Consecutive Decrease

A third consecutive decrease in broader manufacturing production reflects a generally difficult business environment amid persistently low domestic demand, says SEIFSA

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Johannesburg, 8 November 2018 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) today laments a third consecutive decrease in output of the broader manufacturing sector –  including its diverse metals and engineering (M&E) cluster of industries –  for September 2018, underpinned by a difficult operating environment and a worryingly low domestic demand.

Speaking after the release of manufacturing production figures by Statistics South Africa (StatsSA) today, SEIFSA Chief Economist Michael Ade said the manufacturing sector has generally been facing headwinds since the start of the year, characterised by declining business and consumer confidence.

“Although production data in the sector is still positively trending, the data has consistently declined from July 2018. Moreover, corresponding increases in fuel prices, a weaker rand and higher prices of both intermediate and final input have increased operational costs, also depleting existing margins,” said Dr Ade.

He said the output performance in September, which officially closes off quarter three of 2018, is perturbing, especially considering that domestic demand is generally subdued as a result of the economic recession and a volatile exchange rate. He said it was clear from the data that the positive sentiments following  the stimulus plan recently outlined by President Cyril Ramaphosa has yet to filter through to the manufacturing sector and the  M&E cluster.

“Consequently, the general contribution of the sector to the Gross Domestic Product in quarter three will be lower than expected, especially considering that the benefits from outlined stimulus interventions will only become effective with a lag,” said Dr Ade

The latest preliminary seasonally-adjusted data capture a decrease in production in the broader manufacturing sector in September 2018 when compared with August 2018. On a continuous three-monthly basis, output in the manufacturing sector decreased consecutively from 2,7% in July 2018, to 1,5% in August 2018  and 0,1% in September 2018.

Dr Ade said the poor performance in September 2018 was expected, following the recent release of deteriorating data for the purchasing managers’ index (PMI), which dipped to almost a decade low of 42,4 index points. The composite ABSA manufacturing PMI data for October effectively signalled a fourth successive decrease from July, further trending away from the 50-point benchmark level which separates expansion from contraction in business activity, thus triggering new concerns about the state of the economy.

“SEIFSA encourages businesses to stay resilient in the face of the current adversity characterised by volatile production, high unemployment levels, a trade deficit and subdued domestic demand, as policy makers implement measures to help the economy navigate the trough,” Dr Ade concluded.

Ends

Issued by:

Ollie Madlala

Communications Manager

Tel: (011) 298 9411 / 082 602 1725

Email: ollie@seifsa.co.za

Web: www.seifsa.co.za

Consistent Purchasing Managers’ Index Decline Highlights the Challenges Faced By Manufacturers

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Johannesburg, 1 November 2018 – The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is concerned about the dip in overall business activity in the broader manufacturing sector, as reflected in the Absa Purchasing Managers Index (PMI) released today. Speaking after the release of the Index, SEIFSA Economist Marique Kruger said given that the PMI is an indicator of the economic health of the broader manufacturing sector, of which the metals and engineering (M&E) cluster is part, the data highlight that the sector is still facing significant challenges.

The overall headline PMI data indicate that manufacturing activity in the country declined for a third consecutive month to 42.4 percent in October 2018, from 44.5 percent in September 2018, with the seasonally-adjusted index moving further away from the neutral level of 50, which separates expansion from contraction.

“The consistent decrease in the PMI data highlights the challenging operating environment of business amid prevailing low levels of domestic demand, increasing input costs as a result of a generally weak exchange rate and increasing fuel prices which negatively impact on escalating logistics costs,” said Ms Kruger.

She added that the headline PMI and its five main sub-indices play an important role in businesses’ decision-making processes. The business activity index, which enables manufacturers to gauge production activity and output levels in the sector, remained largely unchanged at 40.3 percent in October 2018. He said the index had performed poorly on a consistent basis since March 2018, and that its poor performance was concerning for manufacturers in the sector, especially given the low domestic demand levels.

“The best performer was the employment sub-index which improved from 43.3 percent in September 2018 to 44.2 percent in October 2018. Given that the employment sub-index gives an indication of the possible movement in employment numbers in the domestic economy, the uptick is encouraging. This is especially so following the release of the Quarterly Labour Force Survey on Tuesday, which indicated that unemployment increased to 27.5 percent in the third quarter of 2018,” she said.

In conclusion, Ms Kruger said that she expected businesses in the sector to take advantage of the weaker exchange rate towards an improvement in export volumes and increased demand for exported products, which will invariably have a positive impact on the sector’s performance.

Issued by:

Ollie Madlala
Communications Manager
Tel: (011) 298 9411 / 082 602 1725
Email: ollie@seifsa.co.za
Web: www.meindaba. seifsa.co.za

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