Subdued Domestic Demand Likely To Constrain Promising Manufacturing Production Outlook

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The latest manufacturing production data released by Statistics South Africa confirms the resilience of the Metals and Engineering (M&E) cluster of sub-industries, despite the country officially stuck in a technical recession, says SEIFSA.

SEIFSA Economist Marique Kruger.

SEIFSA Economist Marique Kruger states, “surprisingly, production in the M&E cluster of industries continued to trend upward in August 2018 from July 2018, in line with the broader manufacturing sector, despite signs of headwinds underpinned by weeks of uncontrollable petrol price increases, generally weak exchange rate, high energy costs and municipal tariffs.

“The official output statistics released recently is good and encouraging to businesses in an environment interlaced with doses of economic, policy and political uncertainty,” she says.

Output for August 2018 in the M&E cluster improved to 3.9% on a month-on-month basis, from a lower 3.2% recorded in July 2018, while there was a corresponding year-on-year increase of 4.6% in August 2018 from 3.4% in August 2017. The annual performance of the sub-industries was generally in line with the broader manufacturing production which increased on an annual basis by 1.3% in August 2018 when compared with August 2017.

“Moreover, it is encouraging to note the dominant performance of key M&E cluster of industries, which were the largest positive contributors to the improved performance of manufacturing. Specifically, the basic iron and steel, non-ferrous metals products, metal products and machinery all registered 2.1% improvement in the volume of production and contributing 0.4 of a percentage point,” Kruger says. She adds that the improvement in manufacturing output was generally good for the economy.

The current subdued domestic demand is likely to constrain manufacturing production outlook. The expectation is for its cluster of sub-industries, including the metals and engineering industries, to continue to benefit from a possible up-turn in domestic demand (albeit mild) in due course. However, the continuous improvement in domestic growth will depend, amongst other factors, on the rapid implementation of the President’s stimulus plan – with the detail to be revealed in the upcoming Medium-Term Budget Policy Statement.

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