South African business confidence sinks to 21-year low

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South African business sentiment plunged to the lowest level in more than two decades in the first quarter and could weaken even further as the coronavirus hits the domestic and global economy.

A quarterly gauge measuring business confidence fell to 18 from 26 in the three months ended December, FirstRand’s Rand Merchant Bank unit and Stellenbosch University’s Bureau for Economic Research said in a statement Wednesday. That means more than eight out of every 10 respondents are unhappy with current business conditions. The survey was based on the responses of 1 800 business executives between February 12 and March 2.

Key insights

• The survey was done before news that the economy slumped into a recession in the fourth quarter and before the impact of the coronavirus on global output and markets intensified. That means business sentiment could become even worse and weigh on economic growth.

• With a budget deficit at an almost three-decade high, South Africa’s government has no room to provide fiscal support to help soften the impact of a global slowdown and rather had to announce measures last month to trim spending and the government wage bill to rein in debt.

• “For a small open economy already in recession, the timing of the prospective sharp Covid-19-induced global slowdown could not have been worse,” said Ettienne le Roux, RMB’s chief economist. “Exports will be hit, tourism flows will be affected, and supply-chain disruptions will be widely felt. All the while when South Africa must continue dealing with the growth-dampening effects associated with the corrective fiscal measures necessary to help stabilise public-sector finances.”

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