Business confidence contracts in Q2

4th June 2013

By: Natasha Odendaal

Creamer Media Senior Deputy Editor

  

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Business confidence moved back into negative territory during the second quarter, after confidence faltered in four of the five sectors surveyed in the latest Rand Merchant Bank (RMB) and Bureau for Economic Research (BER) Business Confidence Index (BCI).

The RMB/BER BCI recorded a four-point decline to 48 points during the three months under review. The index was weighed down by relatively poor underlying business conditions, RMB chief economist Ettienne le Roux said on Tuesday.

This followed a six-point rise in the first quarter, placing confidence – at 52 – close to the post-recession peak of 55 reported two years ago.

The 15-point increase in confidence in the building sector offset the declining sentiment in the new motor trade, manufacturing, retail and wholesale sectors, which plummeted by five, eight, nine and ten index points respectively.

“Although less vibrant than last year, retail, wholesale and new car sales volumes continue to expand, while manufacturing keeps wobbling along,” Le Roux commented.

The BCI showed that retail confidence fell from 50 index points to 41 in the second quarter and, after jumping from 57 index points in the fourth quarter of the prior year, to 71 during the first quarter of the current year, wholesale confidence dropped by ten index points to 61 points in the second quarter.

New motor dealer confidence declined to 61 index points during the second quarter, from 66 points in the immediately preceding quarter.

Manufacturing confidence dropped from 42 points in the first quarter, to 34 points during the quarter under review, as production growth and domestic and export sales volumes slowed.

South Africa’s manufacturing sector had been shrinking slowly, from accounting for 20% of the economy in 1995, to the current 17%, on the back of a loss of competitiveness causing deindustrialisation within the nation, said Investec chief economist in South Africa Annabel Bishop.

“The drivers of this loss of competitiveness include rising input costs, such as labour, electricity, water, property rates and taxes and raw materials, as well as skills shortages, specifically technical, and low labour productivity and weak infrastructure,” she explained.

However, Le Roux noted that the recovery in building activity, which recorded a boost in confidence from 30 points in the first quarter to 45 points, appears to be gaining some strength.

“If it were not for this [the building sector confidence], overall business confidence would have declined by a notable eight points,” he said.

He further pointed out that, in the context of continued labour unrest, warnings of power outages and the sharp fall in the value of the rand, one could “easily have expected a larger decline”.

Rand weakness, high inflation, weakening metal prices, ongoing violent strike action, a rising trade deficit, continued property rights and land reform uncertainty, and weak municipal service delivery contributed to a decline in the South Africa Chamber of Commerce and Industry’s (Sacci’s) May BCI.

Sacci reported a decrease in business confidence to 90.4 in May, from 92.3 in April, on the back of a depressed business climate.

However, year-on-year, the subindices were “slightly more encouraging” during the month under review, as seven of the 13 subindices improved, compared with April when only three subindices were recorded as positive and one as neutral.

“While we continue to expect that business confidence will rise in the second half of the year, as the global economy strengthens and demand for South Africa’s exports lifts, much will depend on the dynamics in the labour market improving, as work stoppages reduce production and so slow growth and exports, as well as negatively influence the value of the rand,” commented Bishop.

Sacci added that, if business confidence was to rise above its “current levels of vulnerability”, economic role-players needed to “urgently rally” around a common vision of sound business values and economic progress.

“… noneconomic factors can have a damaging impact on the economy and on the business climate. Ill-disciplined and lawless conduct by economic role-players leads to undesirable effects on growth, the rand and unemployment, which could have been avoided,” the chamber said.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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