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

Business Day - - FRONT PAGE - Lyn­ley Don­nelly and Odwa Mjo

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.

/Reuters

Un­der pres­sure: 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.

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