Johannesburg, 21 September 2017 – The South African Reserve Bank’s (SARB’s) decision to keep the repo rate unchanged at 6.75% and the prime rate at 10.25% will further stimulate domestic demand and sustain the recent up-tick in Gross Domestic Product (GDP) growth, Steel and Engineering Industries Federation of Southern Africa (SEIFSA) Economist Marique Kruger said today.
The Bank’s decision comes against the backdrop of 2.5% quarter-on-quarter increase in the real Gross Domestic Product (GDP) during the second quarter of 2017, up from 0.6% in the first quarter of 2017.
“This is good news for an increasingly constrained domestic consumer who has been hampered by slow expansion of the economy, low income growth, a tight credit market and rising inflation numbers,” Ms Kruger said.
The announcement bodes well for local firms facing an increasingly constrained consumer demand, a trend which impacts negatively on their margins. In addition to stagnant consumer demand, the Producer Price Index (PPI) for intermediate manufactured goods has exhibited a decreasing trend throughout 2017, averaging at 3.4% during the second quarter of 2017, down from the 6.8% recorded during the first quarter of 2017.
“This leaves very little room for manufacturers to pass cost increases into the market. With roughly 90% of the products in the Metals and Engineering (M&E) sector being of an intermediate nature, the declining PPI figures are a cause for concern.
“SEIFSA welcomes the decision to leave the interest rate unchanged. Stable interest rates do not only provide some certainty to businesses, but they also play a significant role in eventually reducing the cost of borrowing. Certainty and confidence in return on investment are imperative for investments into the M&E sub-component in dearth of gross fixed capital formation (GFCF),” Ms Kruger said.
The benefits of the rates cut would transcend the metals and engineering sector to other industrial sectors that are important to the value chain, thereby maintaining the positive domestic growth trajectory. These include the mining, construction, auto industry and transport sectors, she concluded.
SEIFSA is a National Federation representing 23 independent employer
Associations in the metals and engineering industries, with a combined
membership of 1600 companies employing around 200 000 employees.
The Federation was formed in 1943 and its member companies range from giant steel-making corporations to micro-enterprises employing few than 50 people.