The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) is cautiously optimistic following the release of production data reflecting an increase in output in the Metals and Engineering (M&E) sector, despite a corresponding decline in business confidence and a volatile rand, the Federation’s Chief Economist, Michael Ade, said this afternoon.
The latest preliminary seasonally-adjusted data, released by Statistics South Africa today, captures an increase in output in the sub-industry, in line with the broader manufacturing sector, which also increased by 2,3 percent in May 2018 when compared with May 2017.
After adjusting for the sectoral weights, the data indicated that production in M&E sub-sectors increased by 6,2 percent in May 2018 on a year-on-year basis, and by 10,8 percent on a month-on-month basis.
“The acceleration in output in the M&E cluster is welcome, albeit with a slight level of apprehension, given the existing global trade war with the potential of constricting global demand, benign local demand and generally low domestic business confidence. However, the improvement in output augurs well for manufacturers in the M&E cluster and is necessary towards lifting the real Gross Domestic Product figures for the second quarter of 2018, especially considering that current production conditions are relatively better when compared to some few months ago,” Dr Ade said.
Moreover, Dr Ade said that the rand has been very resilient in the face of headwinds, including prevailing uncertainty in the markets and heightened rhetoric from the world’s two largest economies about trade war.
He is optimistic that the relatively strong rand will help in reducing imported input costs, thereby enabling companies to bolster their margins.
“However, it should be pointed out that while this is generally good for importing businesses in the M&E cluster, there will be a slight set-back in export volumes, warranting the need to continuously monitor the trends,” Dr Ade concluded.