SEIFSA welcomes MPC decision to leave repo rate unchanged

25th January 2021 By: Creamer Media Reporter

The Steel and Engineering Industries Federation of Southern Africa (SEIFSA) welcomes the Reserve Bank’s decision to leave the repo rate unchanged at 3.5%, which it believes will relieve pressures on consumers.

SEIFSA Chief Economist Chifipa Mhango said the economy is currently in dire need of a stimulus to revive economic activity. “Keeping the repo rate at current low levels provides the platform to kickstart the economy, drive consumer spending and create a conducive environment for more investment into the economy,” he said.

Mr Mhango noted that the COVID-19 outbreak had resulted in slashed production and sales forecasts as well as the overall economic outlook for local industrial producers. The lockdown put in place in March last year to fight the pandemic had negatively impacted manufacturing from the output and sales perspective and the broader Metals and Engineering (M&E) industries.

“The sector is highly dependent on the performance of the overall South African economy. The GDP trends last year, therefore, presented one of the worst environments for the M&E sector,” Mr Mhango said.

He said South Africa’s economy grew by an annualised 66.1% in the third quarter of 2020, recovering from a record 51.7% slump in the April-June period. This was the strongest pace of expansion since 1993, with manufacturing, trade and mining being the biggest drivers of growth following the easing of COVID-19 lockdown restrictions.

While the pace of decline moderated from the second quarter of 2020 due to the gradual easing of lockdown restrictions, industrial output contracted relatively sharply in the quarter, Mr Mhango said. Meanwhile, business sentiment remained entrenched in negative territory in the same period, likely holding back capital spending, he added.

“Despite the rebound, the economy is still 5.8% smaller than it was at the end of 2019,” he said.

Mr Mhango shared the Reserve Bank’s view that GDP growth of 2.5% is expected in 2023, given the combination of stimulus packages announced by the Government, including the current low-interest rate environment which is supported by low inflation rates.

“SEIFSA is of the view that under the current low interest rates, the South African economy is poised to recover in 2021 as domestic and foreign demand revive. However, high electricity costs and electricity shortages, coupled with rising logistical costs, are likely to continue putting pressure on the industrial cost base, especially for the M&E sector,” he said.