The South African Chamber of Commerce and Industry’s (Sacci’s) Business Confidence Index (BCI) declined to its lowest level this year, at 93.2, in May.

The 1.7 month-on-month index point decline was in light of heightened political tension, additional economic policy uncertainty and lower credit ratings by rating agencies, following the Cabinet reshuffle in March, which negatively impacted on the business climate.

However, the BCI was still 1.4 index points higher than the exceptionally low 91.8 of May 2016.

Nevertheless, Sacci pointed out that more subindices were now capturing the negative impacts from the March events.

The largest negative monthly effect on business confidence came from notably lower merchandise import volumes, lower real value of building plans passed and higher real financing costs. The stronger rand exchange rate and lower consumer inflation made the most notable positive year-on-year contributions to the BCI.

Sacci highlighted that the South African economy was relatively stable during May, but warned that severe constraints on performance remained.

The Fitch and Standards and Poor’s ratings agencies lately kept South Africa's rating at the same level of subinvestment grade as at the end March. However, there was a warning that weak economic growth remains a key risk and concern about South Africa's political situation and the lack of State enterprise reform.

The expanded unemployment rate of 36.4% in the first quarter is also an indication of the significance of the subdued economic performance and inappropriate skill levels. Notwithstanding the excessive official unemployment rate of 27.7% of the labour force – a 14-year high – South Africa concurrently experiences a skills shortage in advanced skilled jobs.

“The recessionary conditions that prevail in the economy with a quarter-on-quarter decline in the gross domestic product in the fourth quarter of 2016 and the first quarter of this year confirm the present economic constraints,” Sacci said.

“The subinvestment grade since the second quarter makes it essential that a policy approach be followed that enhances business and investor confidence and promotes economic growth. It has become important to consider a workable normative economic approach to the socioeconomic challenges of unemployment, poverty and inequality,” it added.