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Effects Of Political Instability On The Economy Were Clearly Evident In April

Effects Of Political Instability On The Economy Were Clearly Evident In April

JOHANNESBURG, 2 May 2017 – The sharp fall in the Absa Purchasing Managers Index (PMI) for April 2017 is strongly indicative of the political noise inherent in the system, which is adversely affecting the economy, the Steel and Engineering Industries Federation of Southern Africa (SEIFSA) said today. 

The seasonally-adjusted composite PMI slumped to 44.7 index points in April 2017, from a reading of 52.2 index points in March 2017. This is equivalent to a 14% decline.

SEIFSA Senior Economist Tafadzwa Chibanguza said among concerns which resulted from the April 2017 reading were the facts that the index had dropped below the neutral 50 index point, which separates expansion from contraction.

Mr Chibanguza said the current reading was a deviation from the strong trend recorded in the first quarter of 2017, during which the index averaged 51.9, indicating expansion throughout the quarter. He said the contraction experienced last month means that the second quarter began “with severe headwinds”, and that may not bode well for the economy in the course of the year.

He said the declines recorded in the April reading were quite widespread. Compared to the March 2017 reading, the seasonally-adjusted, business activity index had declined by 30% to 37 index points, new sales orders had declined by 16% to 44 index points, purchasing commitments had declined by 30% to 35.9 index points and expected business conditions had deteriorated by 18% to 55 index points. Meanwhile, the price index had increased by 10% between March 2017 and April 2017 as a result of the sharp deterioration in the exchange rate in the earlier part of April 2017.

“The extent and timing of these declines in the April 2017 PMI cannot be explained by anything other than the unfortunate political events that took place at the end of March 2017, which triggered the unfortunate set of events that we saw play out in April 2017.

“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,” said Mr Chibanguza.
He said the April 2017 PMI reading was a stark reminder that politics cannot be separated from the economy.

“As a result, we continue to stress SEIFSA’s call for an urgent resolution to the current political impasse. Without this, it will be almost impossible to begin mending the South African economy,” Mr Chibanguza cautioned.


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