Confidence slumps to 13-year low on strikes, low demand

BUSINESS confidence plunged to a 13year low last month and looks set to languish over the course of the year as weak domestic demand, rising inflation and the threat of power failures and labour strikes take their toll on the economy, two indices showed yesterday.

The news does not bode well for a pick-up in private sector investment, which is needed to foster job creation and boost SA’s sluggish pace of economic growth.

A business confidence index compiled by the South African Chamber of Commerce and Industry (Sacci) fell to 90.4 from 93 in February — its lowest level since it hit 89.1 in April 2000.

And a separate survey from Rand Merchant Bank (RMB) and the Bureau of Economic Research (BER) showed confidence improved in the first quarter of this year, but not strongly enough to suggest the start of an upward trend.

Its measure of confidence rose to 52 from 46 in the final quarter of last year, implying that half of the respondents in the survey rated prevailing business conditions as satisfactory.

BER deputy director George Kerschoff noted that the fieldwork for the survey of more than 1,000 companies took place before the release of this year’s national budget on February 27, which he said did not instil much consumer or business confidence.

Given the sharp increase in petrol prices, the threat of power failures and the labour strike in the coal mining sector, it was “uncertain whether business confidence will sustain its upward

trend”, Mr Kerschoff said.

Although confidence had picked up a notch, Standard Bank economist Shireen Darmalingam was concerned that global developments, particularly in Europe, could hit sentiment later this year.

Absa Capital said the improvement may not last as it had become clear since the survey that domestic demand is slowing sharply.

The sharp fall in the Sacci index was broad-based, with component indices on inflation, the rand’s exchange rate, share prices, precious metal prices and private sector borrowing all negative. The indices for retail sales, vehicle sales and imports also weighed on the index.

The changes last month “reflect tentativeness and continued volatility in the business climate”, Sacci said. “The financial environment was more restrictive than a year ago and might weigh on an already stressed real economy.”

Nonetheless, confidence in the RMB-BER index rose in four of the five sectors in the quarter, with retail the only area showing a deterioration. The retail index declined from 54 points to 50, as weaker sales volumes of nondurable goods such as food weighed on confidence. Sales of semidurable goods like clothing also fell, while sales of durable goods — appliances, electronic goods and building materials — rose.

“This variance in sales may indicate that low and lower middleincome groups in particular are beginning to take strain,” the RMBBER statement said.

Confidence among manufacturers rose by four index points to 42.

Supported by a weaker rand exchange rate, sales volumes improved all round while more expensive imports helped to shift demand to locally produced goods and the competitiveness of domestic exporters improved, it said.

New vehicle dealers saw a marked, but probably short-lived, improvement in sentiment, with the index jumping by 12 points to 66.

Confidence among building contractors rose from 28 to 30.