The Rand Merchant Bank (RMB)/Bureau for Economic Research Business Confidence Index (BCI) has increased to 46 in the first quarter of this year, after remaining flat at 43 points in the fourth quarter of last year.
Although the reading remains below the neutral 50-point mark, RMB says it is, nonetheless, encouraging given the index grew from a record low of five points at the height of the Covid-19 outbreak in 2020.
Notably, the survey timeframe fell before the Ukraine invasion started and that event may have an impact on the next quarter’s BCI, given that the conflict is causing a surge in the oil price past $120/bl.
Of the three sectors that showed an increase in confidence in the first quarter of the year, new-vehicle dealers had the biggest improvement. Sentiment from these respondents recovered to 54 in the first quarter of this year, compared with a level of 41 in the fourth quarter of last year.
RMB explains that improved supply made for increased sales, but dealers could still not fully satisfy demand.
Wholesale confidence edged higher to 57 as a result of favourable conditions in the agricultural and mining sectors leading to strong machinery and chemical sales, but sales of consumer goods weakened.
Manufacturing also showed an improvement in the first quarter, jumping to 43 from 38 in the fourth quarter of last year, which RMB attributes to strong domestic sales and exports, despite supply chain bottlenecks and shortages of key inputs constraining activity. If not for these factors, production would have increased more.
As for the remaining sectors making up the BCI, retailer sentiment fell from 52 to 49 quarter-on-quarter and building contractor confidence fell by five points to 25.
Unpacking this, RMB says retailers of non-durable goods saw the biggest deterioration in confidence as sales subsided alongside rising food price inflation, and an apparent ongoing shift by higher-income earners towards greater spending on take-outs and dining out, than on food and groceries for at-home consumption and entertainment – a trend that noticeably benefitted non-durable retailers during Covid-19 lockdown periods.
Sales of durable goods such as hardware and building materials, which were, until now, driven by work-from-home additions and renovations, have seemingly peaked, while that of furniture, appliances and electronic equipment continued to perform strongly.
Sales of semi-durable goods, such as clothing and footwear, are making a comeback of sorts.
Confidence among building contractors retreated to 25 in the first quarter, on the back of excess supply of office, and in some instances, retail space; delays in building plan approvals; delays and even suspensions of tenders; and weak demand for new standalone houses.
RMB says new standalone houses have become increasingly costly against existing houses, the latter of which continue to see subdued price inflation. This leads to limited work being available for main contractors.
By contrast, subcontractors, which are not included in the BCI, continued to benefit from office buildings being refurbished and/or converted into multi-use precincts.
RMB says the economy is starting to show meaningful growth, particularly after a strike in the metal sector, bouts of load-shedding in the fourth quarter last year and the presence of the Omicron variant; however, stagflationary shocks brought about by Russia’s invasion of Ukraine have triggered a large degree of uncertainty around global and South African gross domestic product growth prospects.
It remains to be seen what the full impact of this uncertainty will be on business confidence in coming months.