The Kagiso Purchasing Manufacturers Index (PMI) collapsed in June, declining 5.4 points on the month to 48.2, to the lowest level since August 2011.

The Business Activity Index recorded the largest decline, falling by 9 index points to 47, where this sub-component last was in mid-2011. The Employment Index eased back below 50 to 46.8. The Price Index declined 8.5 index points to reach 65.1.

This shouldn’t be any surprise to clb readers. On May 30 I wrote that:

note that M2 growth accelerated from -10% in September 2009 to 17% in January 2011, before slowing again to -4% in April 2011, accelerating back to 20% in December 2011, and now falling to -4% again.

The upswing of M2 from -4% in April 2011 to 20% in December, is what has resulted in GDP growth surprising economists in its strength in Q4 and Q1. The same thing happened in 2010.

These gyrations of money growth is having devastating consequences on the economy, making investment planning for businesses and individuals extremely difficult. It will result in continued ‘surprises’ to economic growth data, both upside and downside. With the upside surprise phase set to come to an end, the scene is set for more downside surprises for GDP growth in the second half of 2012.

It is volatile monetary policy, originating with the Reserve Bank and filtered through the banks, that is resulting in this stop-start and up-down economic performance.