CAPE TOWN - SA Reserve Bank governor Lesetja Kganyago yesterday warned that the economy could be headed for worse contractions in the future as the two sectors of mining and agriculture buckled under policy uncertainty.
Kganyago told parliament that the only sectors that showed growth in the second quarter were beginning to show signs of a slowdown amidst uncertainty.
He said business confidence in the country had reached levels lower than those that accompanied the 2009 global financial crisis and if nothing was done, the country would experience deeper recession.
“The sooner the policy is clear the better it will be for our socio-economic well-being,” Kganyago said. “We must get rid of policy uncertainty in order to restore business confidence in our economy. For example, why should our mining policy change every time we have a new minister?”
Kganyago’s concerns come as the Absa Purchasing Managers Index for July yesterday fell to its worst level since 2009, weighed down by depressed business activity at the start of the third quarter.
Absa said the index came down to 42.9 points from the 46.7 points registered in the previous month and worse than the 53.6 points that most economists had forecast.
The business activity declined 6.1index points to 39.3 points, while new sales orders shed 4 points in July to 39.8 points. The weak demand and output conditions spilled over to the factory sector job market with the employment index losing 3 index points to 44.1 points.
The inventories index went from 48.9 points in June to 46.1 points, with Absa saying that it expected it to drop further in the coming months.
“Taken at face value, today’s (PMI) reading suggests that South Africa’s manufacturing sector is headed for a crisis worse than any seen since the 2009 recession,” said John Ashbourne, an Africa economist at Capital Economics. “The decline in the headline index reflected sharply weaker readings in all of the key sub-indices.”
NKC African Economics described the fall of the index as indicative of the current business conditions in the manufacturing sector. Its analyst Gerrit van Rooyen said that the index was in line with the current recession, very low levels of business and consumer confidence and a deterioration in the domestic economic outlook.
“While cost pressures on manufacturers are easing, thanks to a resilient rand and a downward trend in international crude oil prices, we do not expect to see a significant improvement in other business conditions in the manufacturing sector during H2 of 2017,” Van Rooyen said.
“This is due to weak domestic demand and low consumer and business confidence levels.”
The mining industry has come under significant pressure in the last two months and has failed to take advantage of the rebounding global commodity prices.
Observers blame Mineral Resources Minister Mosebenzi Zwane’s revised mining charter for the depression.
On Monday, the ANC called for a review, saying that the government needed to take a long-term view on the mining sector and deal with its concerns.
Secretary-general Gwede Mantashe said the ANC national executive committee wanted further discussions on the charter. “We said the minister must provide leadership to the industry.”