Business confidence down on Ramaphoria reality check

Business confidence in South Africa has deteriorated in the second quarter of 2018, according to the latest RMB/BER Business Confidence Index (BCI) released on Wednesday.

After surging from 34 to 45 points in the first quarter, the BCI went down to 39 in the second quarter of 2018.

According to RMB, this means that close to three-fifths of respondents now regard prevailing business conditions as unsatisfactory. It regards this as a disappointing outcome, "yet probably an accurate reflection of reality".

The second-quarter survey was conducted between May 7 and June 5. It encompassed 1 700 business people in the building, manufacturing, retail, wholesale and new vehicle trade sectors.


The BCI report is of the opinion that the first quarter’s 11-point jump was mainly owing to the "euphoria" surrounding the change in South Africa’s political leadership in February.

At the time the bank stated that it would be unusual for confidence to be sustained after such a significant jump. It predicted that as the excitement was likely to wear off and the reality of still subdued economic activity to kick in, confidence would soften in the second quarter.

"Not only did business activity remain disappointingly weak – worsening even, in some sectors – but 'Ramaphoria' also faded in the wake of the ever-rising petrol price, the political debate around 'expropriation of land without compensation' intensifying, and growing signs that the strong synchronised global economic upswing has started to fizzle out," the bank said in a statement.

It pointed out that despite the second-quarter decline in the index, the trend in business confidence remains upwards, even if only tentatively so.

"To help preserve and make this increase more of a lasting one, it is important that the political and policy factors currently weighing down on confidence are resolved," said RMB chief economist Ettienne Le Roux.

RMB believes it would help if the uncertainty around both the Mining Charter and the government’s land reform plans is settled.

"Delivering on the government’s stated priorities of, for example, removing the remaining bottlenecks in the telecommunication and tourism sectors would be a significant step to further boosting confidence and helping lift GDP growth onto a higher trajectory," said Le Roux.
“Acting on these initiatives cannot happen soon enough. This is especially so considering that global headwinds are mounting and domestically, the inflation as well as interest-rate cycles have likely bottomed out.”

Sector confidence
Despite still low inflation and, related to that, low interest rates, business sentiment deteriorated in four of the five sectors making up the index.

After jumping from 34 to 41 in the first quarter, building contractor confidence retracted to 37 in the second quarter. This happened notwithstanding continued and improved activity in the non-residential sector – although from heavily depressed levels.

Building activity in the residential property market changed very little in the second quarter.

Following a large 13-point rise to 42 in the first quarter, retail confidence retreated to 33. Clothing retailers experienced seemingly better trading conditions during the second quarter, with food retailers continuing to see a recovery in sales relative to last year’s dismal performance.

By contrast, recent noticeable growth in the sales volumes of furniture, appliances, building materials and other durable goods just about came to a halt in the second quarter.

New vehicle dealers also witnessed a noticeable worsening in sales, possibly because consumers had brought their purchases forward to the first quarter to pre-empt paying even more, given the 1% hike in the VAT rate on April 1 – a dynamic likely also to have affected retailers selling other expensive consumer goods. Dealer confidence dropped from 52 index points to 35 in the second quarter.
A striking deterioration in demand knocked manufacturing confidence from 37 to 27 in the second quarter – a drop that almost wiped out all the first-quarter improvement in sentiment. Disconcerting to RMB is the fact that domestic, as well as export sales volumes, slackened and production volumes did not fare much better.
The exception in the second quarter was wholesalers, whose confidence jumped from 53 to 62. RMB finds this upturn difficult to explain, which makes its staying power doubtful.

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