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The Steel and Engineering Industries Federation of South Africa (Seifsa) believes that the current economic conditions do not bode well for hard-pressed businesses in the Metals and Engineering (M&E) cluster. These businesses continue to face headwinds amid low levels of domestic demand, a generally weaker exchange rate and increasing operational expenses, Seifsa said in a statement.

Economic conditions putting further pressure on MandE sectorFollowing the increase in the annual Consumer Price Inflation (CPI) as announced by Statistics South Africa (StatsSA), Seifsa pointed out that an inflationary environment will add to the pressure that local businesses are facing, given its direct impact on consumer demand for goods. “Moreover, the generally high petrol price invariably adds to businesses’ logistics costs, and this, in turn, negatively impacts on the cost of doing business. The increase in inflationary pressure is a huge challenge for companies trying to improve on operational efficiency and margins,” adds Seifsa economist Marique Kruger.

According to StatsSA, annual CPI increased to 5.1% percent in October 2018, from 4.9% in September 2018. The index also registered an increase of 0.5% on a month-on-month basis in October 2018.

Kruger says that with the official inflation data now trending even closer to the upper band of the South African Reserve Bank’s (SARB) inflation target of 3% to 6%, the decision to increase the interest rate will invariably add to the cost of doing business, thereby impacting negatively on the margins of struggling businesses. “the failure of the SARB’s Monetary Policy Committee to leave interest rates unchanged, at the very least, is disappointing for beleaguered business and over-indebted consumers, especially in the run-up the festive season.”

However, given the upside risks that an accommodative monetary policy stance would have on the domestic economy’s inflationary outlook, the decision is understandable Kruger says. “The generally weaker exchange rate and the higher petrol price impact negatively on the cost of doing business, while increased inflationary pressures caused by an increase in annual consumer price inflation exacerbate the challenging situation.”

Image credit: https://www.seifsa.co.za/about/team-seifsa/

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