Business confidence down as local elections hype fades

Cape Town – Business confidence declined in October and November, the latest RMB/BER Business Confidence Index (BCI) revealed.

After improving to 42 index points in the third quarter, the BCI declined by four points to 38.

“This means a slightly bigger majority of the 1 600 respondents, surveyed between 17 October and 21 November, are now unsatisfied with business conditions than during the third quarter,” Ettienne le Roux, chief economist at Rand Merchant Bank (RMB), said in a statement on Tuesday.

“As the hype around the local elections has faded, the rand has weakened and the petrol price has risen, there was always a chance sentiment would deteriorate,” he said.

“In the end, this is exactly what happened. After considerable increases in the third quarter, confidence dropped back in the motor and retail trade sectors in particular, and to a lesser extent in the wholesale trade.

“Sentiment among manufacturers remained unchanged at a still depressed level, while the building sector was the only sector that sustained an increase in its BCI.”

He said the application of the new strict regulations for the granting of in-store credit also depressed sales volumes.

“From the look of things, trading conditions during the upcoming festive period will be as challenging as ever,” he said.

“As for new vehicle dealerships, many longed for an improvement in sales during the fourth quarter. This failed to materialise. Consequently, their mood deteriorated anew, with more than seven out of every 10 dealerships now unhappy with prevailing business conditions.”

GRAPH: RMB/BER Business Confidence

Source: Source: BER, Sarb (Shaded areas represent economic downswings)

Le Roux said the low point in the index may be behind us. “Yet, in no way do the fourth quarter survey results imply that a notable economic recovery is upon us,” he said.

“Rather, the results continue to point to a ‘muddle-through’ scenario where growth, in all likelihood, continued to move broadly sideways at a low rate in the second half of the year.

“Credit rating agencies continuously cite the country’s low level of business confidence as a factor inhibiting GDP growth, and rightly so.

“Simply put, without a notable improvement in sentiment, the economy will remain stuck in first gear”, said Le Roux.

“To this end, the initiatives being taken by the different CEO-Presidential working groups are important.

“Equally so are the apparent measures being discussed, and hopefully will be acted on by the relevant parties to help stabilise the labour market in future. But more needs to be done to boost sentiment as the likely related payoffs in stronger fixed investment, greater employment and faster GDP growth in the end will all be worth it.”

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