Business operating environment remains tough

Luke Doig, Senior Economist, Credit Guarantee Insurance Corporation.

Higher fuel taxes and prices, electricity price hikes in the face of faltering supply availability and increased personal taxes all point towards depressed domestic demand. Taken together with stuttering global growth, this implies that business will have to hang tough in the coming months.

Credit Guarantee’s internal adverse indicator has scaled historic peaks in recent weeks and indicates that the payment wherewithal of domestic business is under pressure. Further, our payment default indicator has risen 5.2% on a 12-month rolling basis to February (in value terms) and actual claims payments are almost 26% higher in value in the first two months of this year. The official 7.6% fall in liquidations in February and the 3% fall in the first two months of 2015, do not tell the full story and we remain concerned about the difficult trading environment confronting many businesses.

Retail sales grew at just 1.7% year-on-year in real terms in January with household furniture, appliances and equipment contracting by 4.5% year-on-year. While a slowdown in durable spend is to be expected, the real decline of 2.5% for general dealers over the same period points to a wider malaise for consumer spending. The slowdown in wholesale trade sales in recent months is equally concerning, with real sales having contracted for three successive months. Further, the 6.2% year-on-year fall in building plans passed and 13.3% decline in buildings completed in January (both in nominal terms), points to a lacklustre start to the year for the building industry. Although the leading business cycle indicator eked out a marginal 0.3% month-on-month rise in January, only four of the 11 sub-indices recorded positive growth. What is concerning is the fact that the RMB/BER Business Confidence Index has only averaged 45 since the beginning of 2010 and manufacturing confidence ebbed even lower to 30 in the first quarter of 2015 from 42 a quarter earlier.

Against this backdrop, we are mindful that the imminent Easter holidays may also disrupt certain sectors. With a degree of strength being evidenced in the exchange rate in recent days, we are hopeful that the South African Reserve Bank’s Monetary Policy Committee will not see fit to raise rates this week in the face of such a challenging operating environment.