Johannesburg - Last week the SA Chamber of Commerce and Industry (Sacci) released the results of a survey that show business confidence is at its lowest ebb in more than 14 years.
Sacci’s business confidence index declined by 3.7 index points to 88.9 points last month. A level below 90 index points had not been seen since April 2000.
But while the index painted a gloomy picture, the Reserve Bank downplayed fears that the South African economy could fall into recession in its Monetary Policy Review, released two days before Sacci’s shattering figures.
Not everyone was convinced, though, as economists said the monetary issues over which the central bank had control were not what had pushed South Africa into such an undesirable economic state.
“Economic data publications for the second quarter continue to show that the South African economy is at real risk of falling into a technical recession in the first half of 2014,” Investec’s chief economist, Annabel Bishop, said.
Richard Downing, the chief economist at Sacci, said major problems were not on the monetary policy side but in physical economic activity.
“Real activity – the manufacturing output, export and import volumes, vehicle and retail sales – it all went wrong in May,” he said.
From the start, with the exception of March and April when business confidence improved slightly, the year had not been a good one, he said.
Downing said that while the global economic climate had played a role, other economies were doing better now, indicating that whether South Africa slipped into a recession or not, it would not be because of the global business cycle but rather because of its own structural problems.
Global economies have been showing signs of continuing to strengthen since the beginning of the year, led by rising activity in developed economies, particularly the US, the UK, Germany and Japan. Downing said that even China was still achieving growth rates of around 7.4 percent.
In the first quarter South Africa’s gross domestic product expanded just 1.6 percent year on year, and contracted an annualised 0.6 percent quarter on quarter.
Downing said that it was not just the labour strikes, policies or electricity constraints that affected activity, but the convergence of different structural factors has tipped business confidence into decline.
Meanwhile, Public Enterprises the director-general Tshediso Matona said it was not true that electricity supply constraints were the prime contributor to loss of confidence by investors. He said Eskom had never turned away any investor that wanted an electricity connection. He added that during the day, when businesses were open, Eskom had enough supply to power them.
“We do need a much clearer, much firmer empirical base of that view. I’d like to see what the Reserve Bank report says in regard to that. We need to be sure at all times how much of the constraint in growth is about electricity and how much is about the subdued global economic conditions,” he said.
But even if Matona could argue the impact of insufficient supply in Eskom’s favour, the cost element is another debate.
In her macro-economic update and outlook at the beginning of the week, Bishop said that manufactured goods had been negatively affected by the high inflation rate of electricity this year, which had increased by 10.9 percent year on year at producer level. - Business Report