Category Economy
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Business confidence stable at a low level

09 March 2016 Ettienne Le Roux, RMB
Ettienne Le Roux, chief economist at RMB.

Ettienne Le Roux, chief economist at RMB.

The RMB/BER Business Confidence Index (BCI) was unchanged at 36 in the first quarter of 2016. This means that around two thirds of the 1750 respondents surveyed remained unsatisfied with business conditions early in the year.

Figure 1: RMB/BER Business Confidence

Source: BER, SARB (Shaded areas represent economic downswings)


Given that the index stayed at 36 is no real reason for optimism. While sentiment recovered in four of the five sectors during the quarter, improvements were small. Also, confidence among manufacturers collapsed to levels last seen during the 2009 recession. Concerning too is the longer-term trend: confidence has been deteriorating across all sectors for some time, and in certain cases quite sharply. For example, retailer confidence rose by four points in the first quarter, but at 44 it's still markedly lower than the 60 index points of a year ago. Overall, and barring wholesale trade where sentiment improved moderately to 50 in the first quarter, the remaining four sectors all have a BCI in net negative terrain (see table).

Also worth highlighting is that activity indicators in the sectors where confidence did increase either remained subdued or weakened further. Growth in retail sales volumes remained sluggish, while sales volumes in the wholesale trade sector actually grew at a slower pace in the first quarter. The fact that confidence in both sectors increased was only due to an unprecedented and widespread rise in selling prices which lifted turnover.

In the case of the building sector, activity deteriorated faster in the first quarter than respondents had initially thought. Still, confidence edged up as many now expect activity to (hopefully) trough in the second quarter. As for the non-residential sector, the mood improved from a low base late last year.

Similarly, despite sales volumes taking another knock, the confidence of new vehicle dealers recovered somewhat from a very depressed level in the fourth quarter. Regarding manufacturing, the survey results were bad all round. Production volumes remained weak which, combined with a noticeable drop in domestic sales volumes and even more depressed profitability levels (as manufacturers failed to fully provide for the faster increase in the prices of raw materials and other imported inputs), saw confidence falling to 2009 recession-like levels in the first quarter.

Bottom line

A week ago StatsSA reported economic growth slowing from 1.1% year-on-year in the third quarter to 0.3% in the fourth quarter of 2015. Although the headline RMB/BER BCI was stable in the first quarter, the poor, and in some cases deteriorating underlying activity indicators, are worrying signs. This might well point to further weakness in GDP growth ahead. Troubling as well was the sharp and broadly-based nature of the price increases retailers and wholesalers have apparently been able to put through. "Essentially the latest survey results would seem to suggest that the stagflationary trend of last year is intensifying", said Ettienne Le Roux, chief economist at RMB.


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