Jump in business confidence met with caution
• Analysts adopt a wait-and-see approach, warning it’s too early to see a sustained economic recovery
A surprise upswing in business confidence off 34-year lows can be used to steer the economy towards recovery if the government implements its own proposals for structural reforms, according to the SA Chamber of Commerce and Industry (Sacci). Business sentiment, as measured by Sacci’s business confidence index released on Wednesday, took a positive turn in September, offering the country a chance to implement proposals for economic restructuring.
A surprise upswing in business confidence off 34-year lows can be used to steer the economy towards recovery if the government implements its own proposals for structural reforms, according to the SA Chamber of Commerce and Industry (Sacci).
Business sentiment, as measured by Sacci’s business confidence index (BCI) released on Wednesday, took a positive turn in September, offering the country a chance to implement proposals for economic restructuring. And with the upcoming medium-term budget, it could set the tone for an economic turnaround, the chamber said.
But analysts have cautioned that the reading is not a sign of sustained economic recovery. The rand is expected to remain volatile in the face of important events in the coming months — chiefly the medium-term budget policy statement, a ratings review by Moody’s Investors Service and a rates decision by the US Federal Reserve.
The rand, which was on the front foot for most of Wednesday, was further aided by the better-than-expected business confidence figure, leading its emerging-market peers in gains. But the local currency, which has been buffeted by a prolonged trade war between the US and China, as well as a gloomy domestic outlook, is down more than 5% against the dollar this year, according to Bloomberg data.
In September the BCI reached 92.4, coming in above market expectations, with the monthly positive increases coming from increased merchandise export volumes, a stronger rand exchange rate weighted against major trading and investment currencies, increased new vehicle sales, and an increase in the real value of building plans passed.
On an annual basis, however, the index was still 0.9 points down from September 2018.
The improvement was unlikely to be sustained if the opportunity to introduce structural reforms was not taken, said Sacci economist Richard Downing. The economic strategy paper released by finance minister Tito Mboweni brings together some of the “critical issues that must be attended to”, he said.
“The latest BCI figure is not something to be excited about, it is coming from a 34-year low. We probably have to wait for a month or two to see a bit of sustained recovery,” said FNB Wealth and Investments portfolio manager Edgar Mafoko.
Mafoko said the rand is likely to remain range bound between R15/$ and R15.50/$ ahead of the Moody’s pronouncement. It could, however, head back below R15/$ if SA avoids a negative outcome from Moody’s, trade tensions ease and the US Federal Reserve moves to cut its interest rate at its next meeting at the end of the month.
The BCI’s upswing notwithstanding, SA has been hit by a series of subdued high-frequency data releases that underscore a weak economy. Other data released on Wednesday pointed to a still constrained environment.
IMPROVEMENT IS UNLIKELY TO BE SUSTAINED IF THE OPPORTUNITY TO INTRODUCE REFORMS IS NOT TAKEN
THE LATEST BCI FIGURE IS NOT SOMETHING TO BE EXCITED ABOUT, IT IS COMING FROM A 34-YEAR LOW
The BankserveAfrica Economic Transaction Index (BETI)
— which measures transactions across a number of sectors — grew by a modest 0.5% year on year in September. On a monthon-month basis, however, the BETI recorded a decline in the real value of transactions of 1.6%, between September and August 2019. On a quarterly basis the index declined by 2.2%.
The index closely tracks GDP growth, and the quarterly contraction suggests the economy could shrink in the third quarter of the year, according to economist Mike Schussler. While the outcome is not “100% sure”, the country is “not in a good space and more than likely headed for a decline”, he said.