STEEL AND ENGINEERING
Index plunges as economy nosedives over political instability, says industry body
Sharp fall in the Absa PMI for April "strongly indicative of the political noise inherent in the system", says industry body
Political instability in SA is clearly affecting the economy, the Steel and Engineering Industries Federation of Southern Africa (Seifsa) says.
The sharp fall in the Absa purchasing managers index (PMI) for April "is strongly indicative of the political noise inherent in the system", the industry body said.
"The firing of former finance minister Pravin Gordhan, the subsequent downgrades to the country’s credit borrowing capacity and the incessant political noise inherent in the system all have the capacity to send the economy down an unfortunate low-growth trajectory," Seifsa senior economist Tafadzwa Chibanguza said.
The seasonally adjusted composite PMI slumped to 44.7 index points in April, from 52.2 index points in March, a drop of 14%.
The neutral 50 index point separates expansion from contraction in the economy.
"The extent and timing of these declines … cannot be explained by anything other than the unfortunate political events that took place at the end of March … that triggered the unfortunate set of events that we saw play out in April," Chibanguza said.
The current index reading was a deviation from the strong trend recorded in the first quarter of 2017, he said. During this time the index averaged 51.9 points. The contraction in April meant the second quarter began "with severe headwinds that may not bode well for the economy in the course of the year".
The declines recorded in the April reading were quite widespread, Chibanguza said. Compared with the March reading the seasonally adjusted business activity index had plunged 30% to 37 index points, new sales orders had slumped 16% to 44 index points, while purchasing commitments had also plunged 30% to 35.9 index points. Meanwhile, expected business conditions deteriorated 18% to 55 index points.
In addition, the price index had increased by 10% from March to April as a result of the sharp deterioration in the exchange rate in early April.