Despite the encouraging improvement in manufacturing output in April, Steel and Engineering Industries Federation of Southern Africa economist Marique Kruger says there are still concerns about constraints, including exchange rate volatility and rising costs, facing the sector.
Statistics South Africa (Stats SA) on Tuesday reported that manufacturing output had increased by 4.6% year-on-year in April and that, on a continuous three-monthly basis, output in the broader manufacturing sector had trended positively from 0.7% in February, to 1.3% in March and to 4.6% in April.
“These variables, no doubt, dropped the value-add by manufacturing to gross domestic product in the first quarter of the year and have the ability to further hinder manufacturing’s contribution in the second quarter,” Kruger stated in a release on Tuesday.
Nonetheless, she said businesses were able to stay resilient despite the struggling economy and continuous headwinds faced by companies in the broader manufacturing sector, including the metals and engineering cluster.
“The expectation is for the generally weak exchange rate to boost manufacturing export competitiveness in the mid-term, to the benefit of businesses, to stay resilient and build on the positive performance of the last three months, as we seek ways of reigniting long-term growth and the sector’s value add.”
Further, Nedbank commented that the strongest positive contributors for manufacturing production in April came from the most energy-intensive and export-orientated industries, particularly basic iron and steel, nonferrous metals, metal production and machinery, which was up by 9.4% year-on-year.
Motor vehicles and other transport equipment was up by 18.6% year-on-year, while petroleum, chemicals, rubber and plastics was up 1.7% year-on-year.
“An unstable electricity grid and softer global conditions will continue to cloud the outlook for manufacturing. If State-owned power utility Eskom manages to keep the lights on or at least limits future load-shedding to Stage 1, then manufacturing output could improve further off a low base over the next three quarters.
“The pace of recovery will, however, be contained by softer global and domestic demand, as well as relatively stagnant commodity prices,” said Nedbank.
Additionally, the bank said the South African Reserve Bank’s Monetary Policy Committee was expected to keep interest rates on hold for the remainder of this year and much of next year as the struggling economy would probably keep a lid on price pressures, helping to contain the impact of higher global oil prices, above-inflation increases in electricity prices and the anticipated upturn in food prices later this year and into next year.