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Business confidence remains low

Cape Town - As concern mounts about a possible downgrading of South Africa's credit rating, the latest RMB/BER business confidence index (BCI) shows close to 60 percent of local respondents remain unhappy with prevailing business conditions.

According to the Rand Merchant Bank (RMB) sponsored Bureau for Economic Research (BER) index, released on Tuesday, business confidence remains unchanged at a low 41 points in the second quarter of this year.

Filomena Scalise

“This implies that close to 60 percent of respondents continued to be unhappy with prevailing business conditions. The BCI has been hovering around the 40 index point level for a year now,” RMB said in a statement.

The RMB/BER BCI reflects the results of a survey conducted among 2500 companies between May 5 and June 3 this year.

“Events that could have influenced sentiment to various degrees in the second quarter were: the platinum sector strike, which is now in its fifth month, other smaller strikes (sugar), as well as the threat of industrial action in the metals and engineering sector.

“Confidence might also have been impacted by spill-over effects from the country-wide power outage in March, the large number of public holidays in April, and the national election (and subsequent new Cabinet appointments) in May.”

RMB said the “stable” headline BCI number hid substantial, and “for the most part, worrying underlying changes”.

Manufacturing confidence had dropped from 41 to 25 index points - the lowest level since the economic upswing started in 2009.

“The deterioration in sentiment can mainly be attributed to lower sales volumes and a related deterioration in profitability.”

The bank said the BCI remaining unchanged at a low 41 points could be reflective of the economy already being in a technical recession (defined as two consecutive quarters of negative GDP growth).

However, for the year as a whole, real GDP could still expand by around 1.5 percent to two percent.

“If the services sector, coupled with agriculture and construction, more or less maintained their first quarter growth momentum, a return to more normal conditions in the platinum industry would give the economy a kicker in the second half of the year”, it said.

On Friday this week, rating agencies Standard & Poor's and Fitch are widely expected to downgrade South Africa's credit rating from A- to BBB+.

Some analysts believe this will cause nervousness among investors about future downgrades, and prompt a fall in the rand. - Sapa

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