The Rand Merchant Bank (RMB)/Bureau for Economic Research (BER) Business Confidence Index (BCI) flatlined at a “worryingly” low 28 in the second quarter of the year.

The BER on Thursday stated that seven out of every ten respondents had remained unsatisfied with current business conditions during the quarter.

“The last time that sentiment was this gloomy was two years ago and, before that, during the global financial crisis induced 2009 recession.

“Sentiment improved, however, in building, retail and wholesale trade. Yet, improvements on balance were marginally and fully offset by a renewed drop in the confidence of new-vehicle dealers, while the confidence of manufacturers slid even further,” said the BER.

Building sentiment improved by seven index points to 30; however, it remained at a level that was consistent with scarcity of new work.

Consultancy PricewaterhouseCoopers (PwC) commented that several of the country’s large construction companies had entered into business rescue over the past year.

Builders are planning to trim their workforces going forward.

The construction industry has already shed 142 000 jobs in the first quarter of this year – a decline of nearly 10% compared with the fourth quarter last year.

Meanwhile, retail confidence rose by four points to 28, but sales volumes remained weak across the spectrum of retailers.

PwC noted that shortly after the BCI survey period concluded on June 3, the retail sector had also been hit by a preliminary report published by the Competition Commission highlighting a combination of features in the domestic retail sector that may prevent, distort or restrict competition. This would have stirred concern among retailers about future possible action being considered by the commission to remedy the problem.

Further, wholesale confidence increased by two points to 42, but the BER said it was still markedly lower than the 56 of the second quarter of 2018.

The BER pointed out that a three-point drop to 22 in the BCI of manufacturers and a motor trade confidence reverse to 17 had offset all the other subindices’ gains.

PwC quoted the Absa Purchasing Managers’ Index for May, which reported that, despite a recent decline in production prices, factory output had certainly not impressed this year.

Soft domestic demand for manufactured goods and producers reducing their inventories have weighed on manufacturing activity. In turn, the value of new and used vehicle sales had declined by 2.5% in the first quarter of this year, compared with the previous three-month period.

Further, the BER commented that the latest survey results had dampened hopes of a strong bounce-back following the first quarter’s contraction in gross domestic product (GDP). “The risk of another technical recession in the first half of 2019 remains real.”

Since taking over the reins, President Cyril Ramaphosa has launched several initiatives to help reverse South Africa’s decline.

“Yet, as encouraging (and necessary) as these have been, such measures to first expose past corruption, and then to deal with rebuilding institutions, will only bear fruit in the longer term,” said RMB.

Equally, initiatives emanating from last year’s investment and job summits will take time to deliver the desired outcomes of increased private sector fixed investment and employment creation.

“But, more than this is necessary to get the country out of its current low-growth bind. Indeed, forceful, and in some instances unpopular, structural reforms (communicated through one voice) must also form part of the mix.

“Moreover, to secure buy-in and spread reform adjustment costs fairly, trade-offs will have to be negotiated between the government and organised labour on the one hand, and business and civil society on the other. This will demand adept political leadership, something Ramaphosa demonstrated in the run-up to the 1994 political settlement.”

RMB chief economist Ettienne le Roux added that South Africa would not be able to shift to a lasting higher-growth and prosperity path without more short-term pain.

“This time around, the country cannot rely on the global economy to counterbalance such internal adjustment costs, as global growth itself is now shifting to a lower gear.”

PwC said the survey for this edition of the BCI had been conducted before the release of the “disappointing” GDP data in early June, and business sentiment would likely have been worse if measured after that data had been published.

“This suggested that, heading into the third quarter, there was little in the way of economic data that could simulate business confidence.

“From a political perspective, the appointment of a new Cabinet and the upcoming State of the National Address would refine businesses’ sentiment towards where the economy was going as the year progressed. Nonetheless, policy uncertainty would continue to haunt the private sector.”