The Rand Merchant Bank (RMB)/Bureau for Economic Research (BER) Business Confidence Index (BCI) has notched up to 40 in the fourth quarter, from 24 in the third quarter.
However, the BER questions the sustainability of maintaining business confidence at this level.
Nonetheless, confidence rose in all the sectors that make up the BCI in the fourth quarter.
The new-vehicle sector and the wholesale trade recorded the largest increases in the quarter. Confidence among retailers and wholesalers jumped to 50 and 59 respectively, making them the first sectors in over two years to see confidence rising back into net positive terrain.
Retail confidence rocketed from 36 to 50 in the fourth quarter – an increase which is bigger than the seasonal improvement usually linked to Black Friday and festive holiday sales.
Sales volumes of food, groceries, electronics, furniture and building materials rose impressively, while that of clothing remained under pressure.
BER explains that retail sales in the quarter were supported by a combination of pent-up demand, 300 basis points of interest rate cuts, substitution away from spending on services such as restaurants, entertainment and travel, to spending on ready-made meals, office equipment and do-it-yourself products related to work-from-home, savings resulting from less spent on petrol by those working from home, as well as the Covid-19 related top-ups in social grants, new cash grants to the unemployed and Unemployment Insurance Fund pay-outs.
Wholesale confidence soared from 33 in the third quarter to 59 in the fourth quarter, which was a six-year high, owing mainly to a sharp increase in spending on consumer goods.
New-vehicle dealer confidence leapt from 16 in the third quarter to 41 in the fourth quarter, as sales continued to strengthen in the fourth quarter.
Manufacturing confidence climbed from 22 in the third quarter to 31 in the fourth quarter owing to noticeably better domestic sales, as well as increased exports.
Building confidence improved slightly from 14 in the third quarter to 21 in the fourth quarter, as both residential and nonresidential building activity remained weak.
The increased attractiveness of buying an existing house rather than building a new one, the prevailing oversupply of retail as well as office space and the delays in local authorities’ processing of the backlog of building permits and plans, all dampened activity.
In contrast, the BER says residential subcontractors continued to benefit from ongoing renovations as people spent more time working from home.
Besides the mentioned factors having boosted confidence in the respective sectors making up the BCI, two other overarching ones also played a role: it appears that some respondents in the sectors other than building and new vehicle trade, were pleasantly surprised by the extent to which the latest rebound in activity exceeded their expectations about the future at the time of the third quarter survey.
Secondly, while it is quite possible that the relief respondents felt after having survived the trauma of the Covid-19-induced lockdown, combined with the sensation related to the general strength of the bounce-back in the economy after the “restart”, inspired a sense of optimism above and beyond what can be explained by the fourth quarter improvement in activity alone.
“Although the surge in business confidence is encouraging, it only signifies an economy that’s out of intensive care, and not out of high care” says RMB chief economist Ettienne Le Roux.
Indeed, while the easing of lockdown restrictions in recent months has led to a resurgence in activity, the tempo of growth in 2021 and beyond remains highly uncertain, he adds.
Le Roux is confident that a durable recovery of the global economy, especially as the vaccine is rolled out, and continued high prices and strong demand for South Africa’s mineral exports, coupled with the resumption of international travel, will surely bolster the local economy.
“Yet many risks abound. For example, the strong rise in confidence among consumer facing sectors could easily turn out to be temporary if the ‘kicker’ having come from pent-up demand peters out.
"Equally, poorer-than-expected Black Friday and festive sales could also dent confidence, while uncertainties associated with special Covid-19 income support measures lapsing, is another potential sentiment dampener.
“Further, after significant layoffs in the second quarter, employment prospects remain bleak.”
The increase in the BCI since the second quarter has mainly been driven by retail, wholesale and new vehicle trade, but it is imperative that activity in sectors linked to the supply-side of the economy – the building and manufacturing sectors – catch up more strongly to help ensure that the upward trend in confidence lasts.