Positive Growth In Manufacturing Production Encouraging But Volatile

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The sustained positive trajectory in production of the broader manufacturing sector is encouraging but still volatile, says Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Economist Marique Kruger.

SEIFSA Economist Marique Kruger.

Speaking after the release of manufacturing production figures by Statistics South Africa (Stats SA), Kruger said “although the year-on-year output had consecutively decreased in the three months leading to December 2018, production was still positively trending”. The encouraging performance has continued into the new-year as companies stay buoyant despite a generally softening domestic business confidence and business expectation. However, the volatility in the data is more pronounced when analyzed on a month-to-month basis.

The latest preliminary seasonally-adjusted data published captures a year-on-year increase in production in the broader manufacturing sector in January 2019 when compared with December 2018. Manufacturing production increased by 0,3% in January 2019 compared with January 2018. On a month-to-month basis, output in the broader manufacturing sector decreased by 2,0% percent in January 2019, compared with December 2018.

“Despite the encouraging long-term performance in the wider manufacturing sector, a major concern still remains, as the largest negative contributions in the three months ended January 2019 were made by the broader metals and machinery cluster of industries. In addition, the apprehension is that of a broad-based weakening in activity in industrial production – including the mining, electricity, gas and construction sectors impacting negatively on manufacturing, given the high level of interdependence,” Kruger said.

She added that moreover, the manufacturing sector continues to face headwinds underpinned by increased volatility, low domestic demand, high petrol prices which compounds logistics costs of companies and increasing energy cost. She said encouragingly, the expansion in annual output in January 2019 provided a basis for companies to increase their capacity towards higher production and profits, driven by a firming domestic and regional demand.

“SEIFSA is confident that companies in the broader metals and engineering cluster will continue to stay resilient despite the continuous headwinds and less than required improvement in domestic demand. This is important towards ultimately growing the domestic economy and sustaining current job levels,” Kruger concluded.

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