Confidence levels in 'negative terrain' for first quarter of 2021

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  • The RMB/BER Business Confidence Index declined from 40 to 35 points for the first quarter of 2021.
  • The low confidence levels indicate the fragility of the economic recovery.
  • Seven out of ten senior executives indicated they are not dissatisfied with prevailing business conditions.

Business confidence levels during the first quarter of 2021 were in "net negative terrain", demonstrating the fragility of SA's economic recovery, a survey shows.

The Rand Merchant Bank (RMB)/Bureau for Economic Research (BER) business confidence index for the first quarter of 2021 was released on Wednesday. It declined from 40 to 35 points - below the 50-neutral mark. About 1 300 business people were surveyed during the second half of February when the peak of the second wave of Covid-19 infections had passed and adjusted lockdown level 3 restrictions were lifted, the report highlighted.

Seven out of ten senior executives indicated their dissatisfaction with the prevailing business conditions, the report read.

The retail sector suffered the biggest decline – falling from the 50 to 37. Among the contributing factors to the drop include "lingering" disappointment with Black Friday and festive sales, as well as weak sales volumes especially for durable goods.

"The strong boost lower interest rates and the shift to work-and-school-from-home had given retailers of office furniture, electronic goods, DIY hardware and the like, seemingly has run its course," the report read.

Manufacturing confidence declined from 31 to 25 points. Despite exports improving, domestic sales lost momentum, according to the report. Production was also hit by disruptions to supply chains.

New vehicle dealers' confidence also weakened from 41 points to 35.

"Although sales volumes improved marginally further in the first quarter, they remained depressed overall."

There was a slight deterioration in the sentiment of building contractors and wholesale traders – each slid by one point to 20 and 58, respectively.

Particularly, confidence of building contractors slid as growth in residential activity – such as the completion of projects and renovations – receded.

Confidence levels, although low, are still better than the massive slump in 2020 during the hard lockdown.

According to the survey, the majority of respondents are worried about the "subdued" nature of activity in most sectors, especially manufacturing and construction.

"Such underlying dynamics are not reflective of a robust economic upswing. On the contrary, it talks to one that is rooted in a fragile foundation," said Ettienne le Roux, chief economist at RMB.

Le Roux explained that the economic recovery would be swayed by a third wave of Covid-19 infections with some lockdown restrictions being reinstated, power outages intensifying again, as well as tightening global financial conditions brought on by an unexpected increase in US inflation.

 

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