Reshuffle and downgrades knock back confidence

President Jacob Zuma’s cabinet reshuffle and the credit-rating downgrades that ensued have resulted in a significant knock to business confidence.

The Absa purchasing managers’ index (PMI) contracted in April after three successive months of growth to record the weakest reading in 15 months and the sharpest fall since 2011.

After signs of growth in the first quarter of 2017, the seasonally adjusted index slumped to 44.7 in April from an average of 51.9 for the first quarter. A score above 50 indicates an expanding manufacturing sector.

Absa conceded that “the deterioration is worrying” but said that “the magnitude of the drop may not be reflected fully in official data”.

Manufacturing Circle executive director Philippa Rodseth said: “The cabinet reshuffle and the downgrades by the ratings agencies are bound to have an impact on the economy and this is reflected in the index, which does reflect sentiment in manufacturing. We see no immediate signs of revival, but this is not a time to panic. Of course, we are concerned. But there is no point in wringing our hands and giving up.”

Economists expect other confidence figures this week to give a sense of the damage.

Investec economist Kamilla Kaplan said: “Business confidence is expected to be low as we all adjust .... ”

The economist said it was difficult to infer from a single PMI reading whether conditions in the manufacturing sector would deteriorate on a sustained basis, but “the economy is still expected to have sufficient momentum” for growth.

Capital Economics economist John Ashbourne said the April PMI was “an early sign that the sacking of [finance minister] Pravin Gordhan dealt a serious blow to confidence. While we had expected the economic impact would take time to manifest, the measure of current business activity fell sharply.”