After improving to 42 index points in the third quarter, the Rand Merchant Bank (RMB)/Bureau for Economic Research (BER) Business Confidence Index (BCI) fell by four points to 38 in the fourth quarter.

This means that a slightly bigger majority of the 1 600 respondents, surveyed between October 17 and November 21, are now unsatisfied with business conditions than during the third quarter.

RMB explained in a release that, as the hype around the local elections faded, the rand weakened and the petrol price rose, “there was always a chance sentiment would deteriorate. In the end, this is exactly what happened,” it stated.

After considerable increases in the third quarter, confidence dropped back in the motor and retail trade sectors and to a lesser extent in the wholesale trade.

Sentiment among manufacturers remained unchanged at a still depressed level, while the building sector was the only sector that sustained an increase in its BCI.

BNP Paribas Securities economist Jeffrey Schultz said this slip to a lacklustre level should be a cause for concern for policymakers and remained a key inhibitor to raising potential growth in the economy.

“We expect these weak levels of confidence to translate into a 3.8% year-on-year contraction in overall gross domestic fixed investment growth in 2016. A lack of policy coherence, growing political uncertainty and a weak domestic growth outlook all clearly continue to hold back growth and investment,” Shultz said in a note.

He added that this remained a key concern for rating agencies and was likely to be clearly laid out in Standard & Poor’s (S&P’s) ratings review this Friday. “We expect the agency to downgrade the local currency rating by a notch from BBB+ to BBB as a warning that the country’s external credit rating will be cut to ‘junk’ in the next six months should many of the abovementioned issues fail to be adequately addressed,” he warned.

After jumping from 26 index points to 43 in the third quarter, retailer confidence deteriorated to 34. In addition to continued subdued growth in real household income, the application of new and stricter regulations for the granting of in-store credit also depressed sales volumes, in particular of semidurable and durable goods.

Although sales of nondurable goods such as food and beverages held steady, lower price increases weakened turnover and profitability. “From the look of things, trading conditions during the upcoming festive period will be as challenging as ever,” RMB stated.

As for new-vehicle dealerships, whose confidence slipped from 37 to 29, many longed for an improvement in sales during the fourth quarter. This failed to materialise. Consequently, their mood deteriorated anew, with more than seven out of every ten dealerships now unhappy with prevailing business conditions.

Although the BCI among wholesalers changed little, drifting lower from 56 to 53, it hides a shift in underlying sales volumes; while those of consumer goods weakened markedly, the sales of nonconsumer goods showed a definite recovery. Schultz added that fourth-quarter consumer confidence figures, out before the end of the year, would mirror these trends.

The relative improvement in the agricultural, mining and building sectors lifted the sales of nonconsumer goods such as machinery, chemicals and building materials.

Manufacturer confidence remained unchanged at 30 index points, mirroring the growth in production volumes, which continued to hover around zero. The last time confidence in this sector was above its neutral level of 50 was in mid-2011.

Domestic sales volumes recovered and export sales continued to do comparatively well, but production did not have to be ramped up owing to sufficient levels of stocks of finished goods.

The improvement in residential building activity, which started at the beginning of the year, gathered pace in the fourth quarter. This was good enough to lift the overall confidence of building contractors from 44 to 48.

By contrast, and following the period of spectacular growth between 2012 and 2015, nonresidential building activity fell back in mid-2015 and has continuously struggled since then.

Despite the small drop in the fourth quarter, at 38, the RMB/BER BCI is still an improvement, if only just, on the 32 points reached in the second quarter.

“The low point in the index may thus well be behind us. Yet, in no way do the fourth quarter survey results imply that a notable economic recovery is upon us. Rather, the results continue to point to a muddle-through scenario where growth, in all likelihood, continued to move broadly sideways at a low rate in the second half of the year,” RMB said.

Credit rating agencies continuously cite the country’s low level of business confidence as a factor inhibiting gross domestic product (GDP) growth, “and rightly so. Simply put, without a notable improvement in sentiment, the economy will remain stuck in first gear,” said RMB chief economist Ettienne le Roux.

To this end, the initiatives being taken by the different CEO-Presidential working groups are important. Equally so are the apparent measures being discussed, and hopefully these will be acted on by the relevant parties to help stabilise the labour market in future.

“But more needs to be done to boost sentiment as the likely related payoffs in stronger fixed investment, greater employment and faster gross domestic product growth in the end will all be worth it,” he added.