Bumbling along: Business Confidence lifts off two decade low

Key insights

• Despite the increase, confidence remains deeply negative, with the majority of respondents still expressing a sense of pessimism, RMB said. The index is far below the three-year high of 44 it reached when Cyril Ramaphosa became president in the first quarter of last year.
• While Africa’s most industrialised economy dodged a recession in the second quarter, some forecasts suggest it may have contracted again in the three months through September. The statistics office will publish gross domestic product data for that period on Dec. 3.
• “At current levels, business confidence remains consistent with an economy bumbling along in near recession-like conditions,” RMB said. “For us to convincingly conclude that the long and persistent downturn in the RMB/BER business confidence index has bottomed out will take not one, but several quarters of improvement in sentiment driven by a consistent recovery in underlying activity.”

Confidence up marginally from depressed levels

RMB media statement

After dropping from 28 in the second quarter to a 20-year low of 21 in the third quarter, the RMB/BER Business Confidence Index (BCI) rose to 26 in the fourth quarter – the first improvement in two years. This outcome reflects the responses of 1800 business executives surveyed during the first three weeks of November.

Details

Confidence rebounded in three of the five sectors making up the BCI namely the building, manufacturing and retail trade. It declined in the new motor trade and remained essentially unchanged in the wholesale trade sector.

• Confidence among building contractors deteriorated from 30 to 23 in the third quarter before bouncing back to a still-low 31 in the fourth quarter. Although residential activity recovered somewhat after three quarters of extreme weakness, non-residential building activity remained ever so subdued.
• After slipping from 22 in the second quarter to 16 in the third, manufacturing confidence improved to 24. Despite this rebound, confidence remained extremely low, weighed down by, among other factors, continued poor production output (spread out across a variety of sub-industries), and disappointingly weak export sales.
• Although retail confidence jumped from 17 to 30 in the fourth quarter, it merely countered the 11-index point drop of the quarter before. Except for durable consumer goods, retail sales generally remained quite weak. However the imminent Black Friday and Christmas sales could change the fourth quarter outcome.
• As for the two sectors that showed deteriorating sentiment, wholesale confidence dropped from 42 to an unusually low 29 in the third quarter, easing even further to 28. While sales volumes of consumer goods improved a little, those of non-consumer goods remained heavily depressed.
• New motor trade confidence also fell; its BCI dropped back to 17, in so doing fully reversing the five-index point improvement to 22 in the third quarter. There are few, if any, signs that the sales of new passenger vehicles have turned the corner.

Bottom line

Though the fourth quarter rebound in the RMB/BER BCI is encouraging, some realism is necessary: the improvement was a mere five index points and was not broadly-based across sectors. Moreover, at 26, the BCI remained deep in net negative terrain, with a strong majority of respondents still expressing a sense of pessimism. Indeed, at current levels, business confidence remains consistent with an economy bumbling along in near recession-like conditions.

“For us to convincingly conclude that the long and persistent downturn in the RMB/BER BCI has bottomed out will take, not one, but several quarters of improvement in sentiment driven by a consistent recovery in underlying activity. Further signs that the worst point of the slowdown in global trade is behind us, coupled with a confidence-inspiring National Budget and the successful implementation of the government’s new Economic Transformation, Inclusive Growth and Competitiveness Strategy will certainly go a long way to help make this happen”, said RMB Chief Economist Ettienne Le Roux.