Johannesburg - Confidence levels among both consumers and businesses have edged slightly higher, two indexes show, although consumer confidence is still not at a healthy level.
The South African Chamber of Commerce and Industry (SACCI) on Wednesday said that business confidence in October had gained month-on-month, and was now at 93.
However, in a statement, the chamber noted that, since December, the Business Confidence Index (BCI) has moved sideways and became more unpredictable, which had a notable negative effect on the business climate since the end of 2015. The consequence was that the BCI averaged 93.3 since December 2015 to October 2016 compared to 101.3 over the eleven months to October 2015 – down by 8.0 index points.
“The more transparent and enlightened atmosphere that followed the local government elections in the beginning of August 2016 was followed by allegations early October 2016 against the Minister of Finance [Pravin Gordhan]. This created renewed uncertainty in the business environment with adverse market and business reaction. Although this had a bearing on the business mood, business showed resolve and remained resilient,” it says.
However, it also notes that, in general, the sub-indices were more positive in October 2016 than in September 2016.
SACCI says much hinges on economic growth over the medium-term. Should economic growth outlook remain weak, South Africa could be downgraded by the ratings agencies for a lengthy period, it notes.
SA is rated a notch above junk by S&P and Fitch, while Moody’s rates the country at two levels above this.
A review is due in December and, if SA is downgraded, this will make enticing foreign direct investment into country trickier, and borrowing money more expensive.
SACCI adds, however, that SA may not be on the edge of a sudden drop to junk status, and Gordhan’s mini budget, if fittingly implemented, is the first shield to prevent a further downgrade.
Meanwhile, TransUnion says the Consumer Credit Index (CCI) increased marginally in the third quarter from 48.6 to 49. The CCI is based on a 100-point scale, where 50.0 is the break-even level of improvement and deterioration of credit health.
Regional President of TransUnion Africa, Geoff Miller, explained that a slightly rising CCI just below 50 indicates consumer credit conditions are challenging, but not deteriorating rapidly. He adds one reason credit health may not be worsening rapidly, despite a weak economy and job market, is that borrowers and lenders have been more cautious in recent years.
“We know that lending standards in the past three years or so have tightened up after some tough lessons were learned in the unsecured lending boom from 2009 to 2012. We may be seeing some of the rewards of this trend both to lenders and borrowers,” says Miller.
However, Miller cautions that economic conditions are still weak. “The South African economy has been through a tough period in 2016. We remain concerned that credit conditions are fragile and could deteriorate if economic conditions worsen.”
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