Con­fi­dence in busi­ness hits a 9-year low

The Star Early Edition - - BUSINESS REPORT - Ka­belo Khu­malo

DATA RE­LEASED yes­ter­day by the Rand Mer­chant Bank (RMB) and Bureau for Eco­nomic Re­search (BER) in­di­cated that busi­ness con­fi­dence in the sec­ond quar­ter of this year slumped to lev­els last seen in 2009 largely driven down by per­sis­tent weak busi­ness ac­tiv­ity.

The RMB/BER Busi­ness Con­fi­dence In­dex (BCI) plunged by 11 points to 29 points in the pe­riod, with nine out of ten re­spon­dents hav­ing said they viewed the pre­vail­ing busi­ness con­di­tions as un­sat­is­fac­tory. This means that busi­ness con­fi­dence has been be­low the neu­tral 50-point mark since the last quar­ter of 2014.

Et­ti­enne le Roux, a chief econ­o­mist at RMB, said yes­ter­day that the sharp de­te­ri­o­ra­tion in sen­ti­ment re­flected more than just the im­pact of in­creased po­lit­i­cal uncer­tainty, but that slug­gish busi­ness ac­tiv­ity had also knocked con­fi­dence.

“We last saw such de­spon­dency dur­ing the 2009 re­ces­sion. Strik­ing too is the fact that each of the five sec­tors cov­ered in the sur­vey – man­u­fac­tur­ing, re­tail trade, whole­sale trade, mo­tor trade and the build­ing sec­tor – all had a BCI be­low 50 points,” Le Roux said.

Out of the five sec­tors sur­veyed, the mo­tor trade saw the largest de­cline, with con­fi­dence tank­ing by 19 points to 11 points in the pe­riod un­der re­view. The man­u­fac­tur­ing con­fi­dence saw con­fi­dence plung­ing by 12 points to 16 points, dragged down by poor do­mes­tic sales vol­umes and pro­duc­tion lev­els be­ing be­low ca­pac­ity in the pe­riod.


Build­ing sec­tor con­fi­dence tanked from 42 points in the first quar­ter to 36 points in the pe­riod, due to a fur­ther sharp de­te­ri­o­ra­tion in busi­ness con­di­tions for non-res­i­den­tial build­ing con­trac­tors.

The re­tail sec­tor’s con­fi­dence shed 10 in­dex points to 35 points, while sen­ti­ment among whole­salers de­te­ri­o­rated by 7 points to 49 points, pulled down by weak con­sumer spend­ing.

Le Roux said the fear was that the broad-based drop in con­fi­dence this time around was a pre­cur­sor to the cur­rent busi­ness cy­cle down­swing be­com­ing even more pro­nounced in the pe­riod ahead.

“This is not a reg­u­lar oc­cur­rence. In fact, over the past 42 years, it oc­curred only in 12 in­stances, the last of which was dur­ing the global fi­nan­cial cri­sis when it cor­rectly sig­nalled the on­set of a cycli­cal do­mes­tic eco­nomic down­turn.”

He added that it was con­cern­ing that the RMB/BER BCI had fallen in the way it has. “Ac­cord­ing to the Re­serve Bank’s dat­ing chronol­ogy, the cur­rent busi­ness cy­cle down­swing is al­ready 43 months in progress. This makes it the sec­ond long­est one in South Africa’s his­tory, only sur­passed by the 1989 to 1993 down­turn.”

Ac­cord­ing to Trad­ing Eco­nomics, a data web­site, busi­ness con­fi­dence in South Africa has av­er­aged 44.76 points from 1975 un­til 2017, reach­ing a record high of 91 points in the third quar­ter of 1980 and a record low of 10.20 points in the third quar­ter of 1985.

Kamila Ka­plan, an econ­o­mist at In­vestec, said the de­cline in con­fi­dence in the sec­ond quar­ter re­flected the per­cep­tion that eco­nomic weak­ness would be pro­longed and in­creases the risk that pes­simism will be­come en­trenched.

‘“De­pressed busi­ness con­fi­dence re­flects ex­pec­ta­tions of sup­pressed future eco­nomic growth,” Ka­plan said.

Mean­while, the SA Cham­ber of Com­merce and In­dus­try (Sacci), yes­ter­day said that trade con­di­tions re­mained in neg­a­tive with the Trade Ac­tiv­ity In­dex (TAI) still be­low 50 points in May.

Sacci’s TAI was mea­sured at 49 points last month, up from the 45 points recorded in April, while the sea­son­ally ad­justed TAI im­proved by two in­dex points be­tween April and May 2017 to 47 points in May.

How­ever, on a yearly ba­sis, the sea­son­ally ad­justed TAI has de­clined by two in­dex points. The sea­son­ally ad­justed Trade Ex­pec­ta­tions In­dex de­clined by one in­dex point to 48 points in May.

Richard Down­ing, an econ­o­mist at the South African Cham­ber of Com­merce & In­dus­try said that it ap­peared that the re­cently an­nounced re­ces­sion­ary con­di­tions and junk sta­tus rat­ing agen­cies were weigh­ing on trade con­di­tions.

“Apart from the re­ces­sion­ary con­di­tions, re­spon­dents in­di­cated that un­sta­ble and un­pre­dictable eco­nomic pol­icy, large shifts in cur­rency value, po­lit­i­cal in­sta­bil­ity, lack of lead­er­ship and low lev­els of busi­ness and con­sumer con­fi­dence, make busi­ness man­age­ment ex­ceed­ingly dif­fi­cult,” Down­ing said.

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