No end in sight to decline in business confidence

Business confidence has remained worryingly low in the fourth quarter of 2017 and Friday’s credit rating downgrade will see it take a further knock.

The RMB-Bureau for Economic Research (BER) business confidence index for the fourth quarter was finalised before the downgrade by S&P Global Ratings last week.

Confidence fell one point from 35 in the third quarter to 34 in the fourth quarter of 2017. A score below 50 indicates depressed business confidence.

“Credit ratings downgrades typically increase market volatility over the long term and depress business confidence and so weaken economic growth and employment prospects as a result of the deterioration in fiscal metrics,” Investec chief economist Annabel Bishop said.

RMB chief economist Ettienne le Roux said the emergence of a strong new political leadership with market friendly policies will help kick the economy into gear.

The real concern for business confidence is if Moody’s downgrades SA in 2018. Moody’s is the only credit rating agency that has SA one notch above junk status. Junk status essentially means investors will be wary to invest in SA.

“With Moody’s giving SA a 90-day rating reprieve, the outcome of the December ANC leadership contest and policy pronouncements that will be included in the February 2018 budget have just become that much more important,” he said.

BNP Paribas economist Jeff Schultz said: “The main economic impact would be a further dent to business and consumer confidence, which will result in a lower growth path and lower employment.”

Despite this, he said, the recent downgrade will have little impact on the weak levels.