The latest preliminary production data for the metals and engineering sector, released by Statistics South Africa (Stats SA) this month, reflected a slowdown in production in December, despite a 2% increase in broader manufacturing production during the same period, Steel and Engineering Industries Federation of Southern Africa (Seifsa) economist Marique Kruger has pointed out.

The preliminary data revealed that production in the metals and engineering sector had decelerated to 19.3% in December on a month-on-month basis, compared with the 1% recorded in November.

Kruger noted that the enhanced volatility in the data was partly accounted for by the seasonal effect, but suggested that constrained domestic conditions would continue to hamper an upswing in the metals and engineering sector.

However, Nedbank economists Nicky Weimar and Dennis Dykes were a little more optimistic, noting that the 2% year-on-year increase in the country’s manufacturing output confirmed that the economy was slowly recovering.

In its latest economic commentary on manufacturing production, Nedbank outlined that this was in line with market expectations and stronger than the 1.5% yearly growth recorded in November.

This acceleration was mainly driven by higher production of petroleum, chemicals, rubber and plastics, which rose by 3.3% from last year.

Iron and steel, nonferrous metals, metal products and machinery were also positive contributors, up 3.6%, while food and beverages increased 1.5% and motor vehicles and other transport equipment grew a strong 8% year-on-year.

“Confidence is also starting to mend, bolstered by the change in the African National Congress (ANC) leadership late last year and the decisive actions taken so far to root out corruption. “All these developments suggest that the growth outlook is improving. However, it is unlikely to result in any demand pressure on prices,” said the Nedbank economists.

The rand was still a key risk to inflation, as it remained vulnerable to changing global risk appetites and a further ratings downgrade by Moody’s, which may come about if the new ANC leadership struggles to secure a quick exit for President Jacob Zuma and the National Budget fails to deliver a realistic path back to fiscal sustainability.

“Given these uncertainties and the complex nature of South Africa’s many challenges, we think that the Monetary Policy Committee will err on the side of caution, leaving interest rates unchanged throughout this year.

“However, if there is more positive political news over the next month, the case for cuts in the very short term will become more convincing,” Weimar and Dykes highlighted.

Meanwhile, manufacturing production was expected to further improve in the year ahead, with better performances expected in most export-orientated industries, supported by stronger global growth and slightly firmer international commodity prices.

“Although underlying demand conditions for import-competing industries will probably remain sluggish, hurt by tough domestic operating conditions, some improvement is nonetheless expected off a low base throughout the year,” the economists pointed out.