CEO confidence dips for first time in over a year

2010-10-19 11:40

The confidence of chief executive officers has dipped for the first time in over a year.

According to the Merchantec CEO Confidence Index – which collates views from CEOs of top local companies – confidence dropped slightly by 3.5 points to a score of 60.7 in the third quarter of 2010.

“This dip reflects CEOs’ uncertainty, as well as challenges in market conditions in the short to medium term,” Merchantec said as it released its findings today.

Confidence in current economic conditions, being one of the components of the Index, fell by 7 points from the first quarter of 2010 to a score of 56 in the third quarter.

“There had been a general expectancy that the global economic recovery would continue to gain momentum throughout 2010 when in fact, the recovery has been erratic,” said Don Truda, CEO of Merchantec.

As the year continued, the unpredictability had eroded CEOs’ confidence.

In line with the decrease in confidence in economic conditions, CEOs’ confidence in both their companies’ and industries’ growth had generally tapered.

“Financial Services has been the only sector with a bullish outlook for industry growth, and recorded the highest score out of all six sectors covered, although this is in contrast to actions currently being taken by some of the larger retail banks,” Truda said.

While all five components of the index declined, the lowest scoring component remained companies’ ability to raise debt or equity capital, painting an uncertain picture for growth in confidence going forward.

The index found that even though CEO confidence in planned capital investment in business activities had decreased, this component reflected the second highest score.

“The slight drop in confidence could be attributed to the continued difficulty in obtaining debt/equity capital,” Truda said.

CEOs indicated that labour strikes, retracting construction activity, lack of support from banks and the rumoured nationalisation of mines had been negative influences.

Factors having a positive impact on confidence were lower interest rates and opportunities in Africa.

Truda said that confidence in the consumer goods sector fell for a second quarter in a row which was indicative of the situation post the euphoria surrounding the Fifa Soccer World Cup and the benefits it offered to this sector earlier in the year.

The Basic Materials sector regained some of the confidence which it lost in the previous quarter, specifically recording CEOs’ optimism in investing in their businesses in the next six months.

“This could be due to the initiation of work on mining projects on the back of rising commodity prices... it would be encouraging to see this upward trend in confidence continue into the new year,” Truda said.

The opportunity of expanding into Africa was buoying CEO confidence with almost 64 percent of CEOs claiming that growth in Africa would have “a notably positive influence” on their businesses in the coming year.

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