Drop in SA business confidence shows economic recovery from Covid-19 years away

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Economists say decline in business confidence shows that more needs to be done to boost the economy.Photo: Getty Images
Economists say decline in business confidence shows that more needs to be done to boost the economy.Photo: Getty Images
  • The South African Chamber of Commerce and Industry (SACCI) has released its business confidence index for August and September.
  • After a sustained recovery since June, the index declined slightly by 0.1 index points in September.
  • Economists say this slight regress shows that the initial gains from lifting the more severe lockdown restrictions are now normalising, and more needs to be done to boost the economy.

A sustained decline in retail sales volumes, lower share prices on the JSE and less credit going to the private sector continued to suppress business confidence in South Africa in September. And even though almost all sectors of the economy have opened up after the strict lockdown, the South African Chamber of Commerce and Industry (SACCI) said business confidence in the country appears to "find it difficult to regain its rhythm".

After confidence levels rebounded in June and July from the deterioration recorded in the first two months of the lockdown, SACCI said its business confidence index declined marginally again in September.

August had seen the index – which gauges sentiment and forward-looking expectations of firms, and by implication affects their plans to invest or hold-off planned expenditure in a country – improved to 85.8. That amounted to an improvement of three index points from July. But the index regressed by 0.1 index point in September and was still 6.7 index points below its September 2019 level.

"This shows that it's not just about unlocking the economy by easing the lockdown. There were some setbacks in the economy. So, the economy will take some time to recover. There will have to be more done than just unlocking the economy," said SACCI's economist, Richard Downing.

The SACCI business confidence index is slightly different from the RMB/BER Business Confidence Index, which surveys business leaders to hear what they think of the future. SACCI's is rather based on technical data like retail sales, merchandise export and manufacturing output.

Dr Azar Jammine, director and chief economist at Econometrix said the unemployment data that came out last month might have weighed on the index if it incorporates employment figures too.

Jammine said as South Africa moved down lockdown levels, the rebound in economic activity differed. The move from levels 5 to 4 and 3 meant that more sectors opened. But when the country moved to level 2 and level 1, the remaining restrictions that were lifted were relatively small.

"You shouldn't expect the recovery to carry on at the same pace because the proportional benefits you get from the lifting the few remaining lockdown restrictions are relatively smaller. The message is we are not going to get back to where we were prior to the Covid-19 virus for a good few years still," said Jammine.

SACCI said South Africa's economy remains in a fragile situation and therefore government should continue to pursue enabling policies that will encourage the business sector to fast track growth and employ people.

The body which represents approximately 20 000 small, medium and large enterprises across all economic sectors in the country said while the move to lockdown level 1 has put the process of restoring the economy in motion, corrective action is necessary for the unsustainable fiscal situation in all public sector institutions.

"The high-profile public arrests for corruption will go some way to restore local and foreign investor confidence but further structural economic adjustments are required to steer economic policy in a credible direction and towards growth and employment creation," wrote SACCI in the statement.

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