The country's motor manufacturing sector said recent political developments has led to it deciding to temporarily suspend projections for domestic vehicle sales.
Industry Association, Naamsa, said the performance of the automotive industry was closely correlated with the overall performance of the country's economy.
Naamsa's Dr Norman Lamprecht, said in this context, the key performance factors driving the industry include GDP growth, the direction of interest rates and the exchange rate.
"In the short term, South Africa’s economic prospects will be affected adversely due to the shock to business confidence as well as to foreign and domestic investment sentiment. Business confidence is a necessary condition for economic growth. The likelihood of exchange rate weakness and resultant higher inflation, upward pressure on interest rates, lower private investment spending, higher government debt servicing costs and lower tax revenue receipts will combine to contribute to a lower economic growth rate and less employment," he said.
He said furthermore, over the medium term, the likelihood of credit ratings downgrades has risen substantially.
"In such an eventuality, the South African economy will experience an immediate sharp recession with negative growth rates which – based on the experience of other countries – are likely to persist at least for two to three years. Sovereign credit downgrades will precipitate significant capital outflows, cause severe exchange rate depreciation, higher inflation and interest rates and result in severe pressure on government finances," Lamprecht said.
"The said outcomes would undermine the official vision for South Africa of economic growth, transformation, employment creation and poverty alleviation. A prolonged recession means that these
objectives will remain out of reach. It was in light of these concerns that government, business and labour implemented a joint strategy aimed at positively influencing foreign investors and credit ratings agencies to avoid/reduce the growing risks of country credit downgrades."
"The international and domestic investment community regard political stability, continuity of policy and fiscal discipline as key requirements. Failure to act in accordance with these imperatives is likely to cost South Africa dearly," he added.
Lamprecht said the performance of the South African automotive industry was "closely correlated with the overall performance of the country's economy" and in this context, the key performance factors driving the industry include Gross Domestic Product growth, the direction of interest rates and the exchange rate.
"In light of the political events, NAAMSA will suspend, for the time being, projections for domestic vehicle sales. Once the situation and conditions have settled down and greater clarity is forthcoming as to the impact of the political events on the direction of the economy, the Association will resume and offer guidance on expected new vehicle sales trends," Lamprecht said.
"Both in the short and medium term scenarios, the risk of lower vehicle sales is significantly on the downside".
