Business organisation the South African Chamber of Commerce and Industry's (Sacci's) Business Confidence Index (BCI) declined by 4.2 points to 106.7 in April but increased by 0.2 index points to 106.9 in May, which suggests the business climate might be settling down after the uncertainty experienced earlier in the year with the worsening electricity supply outlook.

The May BCI was, however, 10.4 points lower than in December 2022, the organisation pointed out.

Between April and May, there were three notable positive effects on the BCI, namely more new vehicles sold in May, improved energy supply caused by a lower dollar crude oil price, and increased manufacturing output.

The largest negative short-term impacts were related to foreign trade relations, including less merchandise import and export volumes, fewer inward tourists, and the weaker rand exchange rate against major trade and investment currencies.

"Although international developments and South Africa’s positioning towards global relations featured prominently during May, it was mainly domestic issues like electricity loadshedding by Eskom that affected the business climate detrimentally. A number of other socio-economic developments pertaining to health and service delivery also surfaced more desperately during May," the chamber said.

Global economic matters and structural domestic economic issues further added to a tight and uncertain business environment.

"The substantial swing from a surplus on the trade account in the first four months of 2022 to a notable deficit in the first four months of this year reflects the effect of global trade on South Africa, as well as the economic sensitivity of South Africa to international trade relations.

"This volatility affects business and investor confidence and eventually economic performance, employment and wealth. Threats of losing out on lucrative trade agreements may dent an important element of South Africa’s economic relationships and wellbeing," the chamber said.

"With the global economy slowly recovering to perform optimally, it is essential that due attention be paid to place South Africa back on a trajectory attracting foreign investment and extend lucrative trade relations.

"A large part of the loss of business confidence could be regained by following the best global economic and business interests of South Africa and attending to local structural impediments," Sacci said.

As expected, the electricity and water sector output declined by 6.3% year-on-year in the first quarter of the year, with agriculture also down 5.4%, mining down by 3.9%, manufacturing down by 3.6%, and trade down by 1.5% following suit, the chamber said.

On the demand side, real household consumption expenditure slowed to a 0.7% year-on-year increase in the first quarter and real consumption expenditure by general government increased by 0.4% year-on-year.

"It is somewhat worrying to note that gross capital investment growth slowed to 7% year-on-year in the first quarter of this year after increasing by 14% in 2022," Sacci pointed out.

Further, export volumes on goods and services increased by 9.1% in 2021 and 7.4% in 2022, but slowed to 3% year-on-year in the first quarter. However, import volumes of goods and services were also increasing at a slower rate of 8.7% year-on-year in the first quarter of the year compared with 14.9% year-on-year in 2022, and this is going to lead to a larger deficit on the foreign trade current account and pressure on the rand.

The latest gross domestic product data for the first quarter indicates that South Africa averted a technical recession. The economy expanded by 0.2% year-on-year in the first quarter of the year compared to 1.9% growth in 2022.

This confirms a possible slow growth trend for 2023, Sacci said.

Year-on-year, the business environment took a marginal dip in April, but declined more severely in May, the chamber noted.

Year-on-year positive impacts came from increased merchandise import volumes, increased inward tourists, and notably more new vehicles sold.

Conversely, year-on-year less merchandise export volumes, the rand under pressure and higher real financing cost in particular were causing a dent in business confidence.

Month-on-month, the real economic activity sub-indices had a lesser negative effect on the business climate than the financial subindices, of which none were positive. Year-on-year, real activity subindices had a larger positive impact on the business climate than the subindices of the financial environment, Sacci said.