Bad news for South Africa’s economy

Sentiment among South African manufacturers slumped in May as businesses paused orders to await the results of last week’s election.

The Purchasing Managers’ Index fell to 43.8 in the month – the third time it’s been in contractionary territory this year – compared with 54 in April as business activity and new sales orders were hit by weaker demand, Absa said on Monday.

Business activity and new sales orders contracted because of sluggish domestic demand, sustained high interest rates and low levels of credit extension, the lender said.

Export sales also declined in May due to supplier problems in Europe and delays in deliveries of inputs, it said.

Purchasing managers were more optimistic about business conditions going forward. The index that measures expected business conditions in six months’ time rose to 57.6 in May from 55.7 in April.

Manufacturers surveyed were hopeful of a favorable election outcome and more upbeat about the global economic recovery, Absa said. 

South Africa’s ruling African National Congress got less than 50% of the vote in the May 29 election, the first time it hasn’t had a parliamentary majority since it came to power three decades ago.

The party is in talks with opposition groups about potentially forming a coalition government.

Other positive news contained in the PMI reading was that purchasing prices declined to the lowest reading in six months, reflecting easing cost pressures.

That’s good news for the central bank, which last week held its benchmark interest rate and said it sees inflation stabilizing at 4.5% — the midpoint of its target range — earlier than previously expected.