Despite the unpredictable economic and political environment, the South African Chamber of Commerce and Industry’s (Sacci’) Business Confidence Index (BCI) picked up by 1.7 index points to 94.9 in June, from 93.2 in May, showing the resilience and perseverance of local business.
However, the BCI was still 0.2 index points below the June 2016 level of 95.1.
Sacci explained that, at present, the BCI was informed by deliberations on economic policy that could adversely impact on investor and business confidence.
“This could cause the economy to stutter further while battling recessionary conditions and could have lasting effects on unemployment, income distribution and rising poverty,” it added.
Nevertheless, the chamber said a realistic approach, that enhances the outlook for the private sector and its ability to mobilise capital, could turn the economy away from faltering further.
The main contribution to the monthly improvement to the BCI in June was made by higher merchandise import and export volumes, the improved rand exchange rate weighted against the dollar, the pound and the euro, and increased new-vehicle sales.
The largest negative monthly contribution to the BCI was the decline in share prices on the JSE.
The stronger weighted rand exchange rate, increased merchandise import volumes and lower consumer inflation made the most notable positive year-on-year contributions to the BCI.
Sacci noted that a number of events took place during June that not only increased uncertainty in the economic policy environment and business confidence, but also affected short-term economic variables and financial markets, such as the volatility of the rand.
“These events include topics such as the role of the Reserve Bank, [the new] Mining Charter, credit ratings, and the Financial Intelligence Centre Act applications and need to be addressed responsibly with investor and business confidence in mind.”
Sacci suggested anticyclical policy options which could help South Africa work its way out of the downward phase of the business cycle under normal economic circumstances. “However, to find a way out of a recession given a less fortunate credit rating makes it a matter of urgency.”
It suggested that more thorough discussions on economic direction would have to take place before unintended consequences of economic regression, unemployment and increased poverty are set in motion that could lead the economy into a long-term structural trap.
“In this context, business and households will have to be convinced of the road ahead before confidence will recover.”