Jun 07, 2012
Domestic, global uncertainties weigh on business sentimentBack
Johannesburg|Efficient Group|Merchant Bank|Europe|South Africa|Dawie Roodt|Hugo Pienaar|Sacci
© Reuse this
This is according to the Rand Merchant Bank's and the Bureau of Economic Research’s (RMB/BER) Business Confidence Index (BCI) released on Thursday.
The RMB/BER BCI fell by 11 points to 41 in the second quarter of 2012, following a marked increase in the first quarter.
Efficient Group economist Dawie Roodt told Engineering News Online that the falling exchange rate and deteriorating equity market in South Africa, brought on by international economic uncertainty, also contributed significantly to weakening business confidence.
“It is unclear what will happen in Europe, which leads to severe uncertainty in terms of the future and therefore also affects local business confidence. What is clear, though, is that should the European economy implode, it would be bad for all of us,” Roodt said.
BER senior economist Hugo Pienaar said at the BER conference, in Johannesburg, earlier in the week, that decreasing confidence was resulting in the domestic corporate sector keeping its money in cash, rather than employing it in fixed investments.
He added that the current pressure on the rand could persist in the short term, or until the outcome of the Greek elections was known.
However, Pienaar remained optimistic, stating that the rand could show significant recovery towards the end of 2013, provided the global economy takes an upward turn.
Heightened risk to global growth also resulted in a sharp price fall in key commodities such as oil and copper, which further hindered business confidence.
The RMB/BER BCI showed that the mood during the second quarter soured in four of the five business sectors making up the index.
Retail confidence fell from 61 index points in the first quarter to 39 in the second, the lowest level in two years. RMB and the BER attributed the fall mainly to weaker growth in sales volumes across all types of retailers.
Manufacturing confidence plunged from 47 index points to 29, despite domestic and export sales volumes holding up in the second quarter. Rising inventory levels relative to expected demand, as well as shortened delivery times of orders received underscored the concerns.
New-vehicle-dealer confidence also declined from 73 index points to 65, in large part owing to noticeably slower growth in sales.
Sentiment among building contractors deteriorated from 31 to 24 index points in the second quarter. The decrease stemmed mainly from nonresidential contractors, whose confidence fully reversed its first-quarter gain.
However, wholesale business confidence increased modestly from 48 to 50 index points on the back of improved sales of nonconsumer and consumer goods.
“Given deteriorating prospects for consumer spending, as well as for exports, the pressure is now even more on fixed investment to come to the economy’s rescue. The sharp drop in business confidence does not bode well for prospective private sector fixed investment, in particular, and economic growth in general.
“If ever there was a time for the government to kick capital expenditure into higher gear, it is now,” RMB and BER stated.
Meanwhile, the South African Chamber of Commerce and Industry (Sacci) BCI for May 2012 declined by a further 1.5 index points to 92.8 - its lowest level in more than nine years.
Sacci's BCI was currently 8.4 index points lower than in May 2011, when it registered 101.2.
Sacci stated that the BCI was marred by notable negative movements in the subindices in May. Only two of the thirteen subindices were positive month-on-month, while the financial and real economic components had just one subindex each that showed positive growth.
Over the medium term, the yearly comparison showed that three of the subindices improved in May, this included household spending, government spending and lower real interest rates.
“The contagion from the economic impasse in Europe is gaining in global impact as faster-growing economies are now also experiencing a slowdown while circular and multiplier effects continue to grow,” Sacci stated.
It added that the lack of alignment across economic policy positions was posing a challenge locally, as business sought policy stability in an increasingly perplexing domestic economy.
Edited by: Mariaan Webb© Reuse this Comment Guidelines
Updated 2 minutes ago Investment in infrastructure and natural resources will continue to underpin economic activity in sub-Saharan Africa, although capital outflows sparked by tighter global financial conditions pose a risk to growth, the IMF said on Thursday. Inflation looks set to...
Recent Research Reports
Steel 2014: A review of South Africa's steel sector (PDF Report)
Creamer Media’s Steel 2014 report provides an overview of the global steel industry and particularly of South Africa’s steel sector over the past year, including details of production and consumption, as well as the country's primary carbon steel and stainless...
Projects in Progress 2014 - First Edition (PDF Report)
This publication contains insight into progress at the delayed Medupi and Kusile coal-fired projects, in Mpumalanga and Limpopo respectively, as well as at the Ingula pumped-storage scheme, which is under construction on the border between the Free State and...
Automotive 2014: A review of South Africa's automotive sector (PDF Report)
The report provides insight into the business environment, the key participants in the sector, local construction demand, geographic diversification, competition within the sector, corporate activity, skills, safety, environmental considerations and the challenges...
Construction 2014: A review of South Africa's construction sector (PDF Report)
Construction data released during 2013 hints at a halt to the decline in the industry during the last few years, with some commentators averring that the industry could be poised for recovery. However, others have urged caution, noting that the prospects for a...
Electricity 2014: A Review of South Africa's Electricity Sector (PDF Report)
This report provides an overview of the state of electricity generation and transmission in South Africa and examines electricity planning, investment in generation capacity, electricity tariffs, the role of independent power producers and demand-focused initiatives,...
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
This Week's Magazine
The Electronic Systems Laboratory (ESL) of the Department of Electrical and Electronic Engineering at Stellenbosch University is strongly reaffirming its position as one of South Africa’s leading centres for satellite technology and expertise. It is currently...
The world’s lowest-cost diesel-electric locomotive is not made in China, but in Pretoria, at RRL Grindrod Locomotives’ newly upgraded 30 000 m2 plant. The company’s locomotive pricing is “more competitive than any other original-equipment manufacturer (OEM)...
The South African Defence Review 2012, released to the public at the end of last month (despite the year given in its title) recommends the creation of the post of Chief Defence Scientist. This official would be responsible for the management of defence technology...
AltX-listed engineering technology company Ansys has been awarded an R188-million contract by Transnet to supply integrated dashboard display systems to the freight rail utility’s locomotives. Black-owned and controlled Ansys developed the bespoke integrated system...
South Africa’s sole nuclear power station Koeberg, which is located in the Western Cape, breached a major operations milestone on April 4, which marked the thirtieth anniversary of Unit 1 having been connected to the grid. Eskom, which operates the two-unit plant,...