Sona, Budget fail to arrest decline in business confidence

PRESIDENT Cyril Ramaphosa’s State of the Nation Address (Sona) and Finance Minister Tito Mboweni’s maiden Budget speech failed to provide business with direction, with the Rand Merchant Bank (RMB)/Bureau for Economic Research (BER) Business Confidence Index falling in the first quarter of this year.

Sentiment among executives declined by three points to 28 points in the first quarter – the lowest level since the 27 points in the second quarter of 2017.

RMB/BER said the index showed that seven out of 10 businesses remained unsatisfied with prevailing conditions.

Ettienne le Roux, the chief economist at RMB, said a broad-based weakening in activity had pushed confidence down to worrying lows.

“South Africa will not be able to shift to a lasting higher growth and prosperity path without more shortterm pain,” said Le Roux.

“This time around, the country cannot rely on the global economy to counterbalance such internal adjustment costs, as global growth itself is now shifting to a lower gear.”

Last week, the South African Chamber of Commerce and Industry (Sacci) said its business confidence index fell from 95.1 points in January to 93.4 points last month – the lowest since September.

RMB/BER said yesterday the index showed that current business conditions, as well as immediate and shortterm expectations, deteriorated from 31 points in the fourth quarter of last year, marking the 17th consecutive reading below the 50-point threshold after a brief peak at 52 points in late 2014.

Research group NKC said sentiment deteriorated in four of the five sectors covered, with none scoring above the neutral 50 points level.

NKC analyst Jacques Nel said building confidence dropped from 32 to 23 points, retail confidence from 33 to 24 points, while manufacturing confidence dropped from 30 to 25 points.

Nel said only the new vehicle trade registered an improvement in the quarter, increasing from 15 to 26 points.

“This clearly weighed on business confidence,” Nel said. “Identifying the problem is the first step to recovery, but there is still considerable uncertainty whether South Africa is heading in that direction.”

RMB/BER said building confidence dropped from 32 points to 23 points – the lowest level in eight years – while retail confidence plunged from 34 points to 24 points.

It said low confidence among retailers was due to the under performance of non-durable goods.

Investec chief economist Annabel Bishop said that the muted business sentiment was due to persistently weak demand in the economy.

“The first-quarter survey took place between February 13 and March 4, and was doubtless heavily influenced by the marked load shedding that occurred in that period,” Bishop said.

“Four of the five sectors have confidence readings in the 20s, a broad-based weakness in economic activity, with businesses’ profit margins narrowing on weak demand, as many businesses battle to pass through higher operating costs to a financially vulnerable consumer.”

Meanwhile, Sacci’s Trade Activity Index for February measured 35 points compared with 30 points in January.

However, activity was 9 points lower compared with last year.

Sacci economist Richard Downing said that domestic economic conditions were not favourable, and this was being exacerbated by lower global economic growth and trade difficulties.

“Locally, high unemployment, high household debt, increasing risks and the cost of energy, strikes and work stoppages, and the application of empowerment measures are among the challenges facing trade,” Downing said.