Tough Economic Conditions Affect Business Confidence

SACCI today released its Business Confidence Index (BCI) for June 2008. The SACCI Business Confidence Index (BCI) declined further to 92.6 in June 2008 after measuring 93.0 in May 2008. The only positive contributions to the BCI in June 2008 was from manufacturing and building plans passed. Nine sub-indices had a negative impact while two did not affect the BCI’s movement in June 2008.

Since a record level of 103.5 was registered in December 2006, the BCI declined by 10.9 index points to the current 92.6 in June 2008 - some ten points above the BCI for the period 2001 up to the middle of 2003 when the BCI remained relatively flat. The average for the SACCI BCI in the first half of 2008 is 93.4 compared to the average of 100.5 in the first half of 2007. Given the intensity of the adjustments and adverse prevailing economic conditions, SACCI believes that business confidence will remain under pressure over the medium term.

The political turmoil in Zimbabwe and the poor response it has elicited from certain African quarters has lead to negative sentiment towards Southern Africa. This accordingly weighs negatively on business confidence in South Africa. The global economic slowdown, which in some countries and for certain kinds of economic activity has been described in recessionary terms, creates a sentiment that bears upon the already tough local economic conditions.

The prevailing short-term economic and financial disequilibrium receives much attention, but SACCI is concerned that the required policy tightening will bring considerable distress over the medium term, especially to small and medium sized businesses.

There has been an improvement on the monetary balancing act, but other adjustments that have taken place together with the serious imbalance reflected by the current account deficit that stands at 7.7% of GDP pose risk factors.

South Africa’s most urgent economic corrections are of a short-term, cyclical nature and have financial dimensions that are having an immediate, detrimental effect on real macroeconomic equilibrium. The political turmoil and uncertainty affecting Southern Africa need an urgent response before the impact on business confidence starts to particularly affect the small to medium sized business sector in ways that might not be retractable.