Johannesburg - Business confidence plummeted to a record low yesterday, dragged down by shrinking consumer spending that has sunk hopes of a retail-led recovery, with economists expecting today’s first quarter gross domestic product (GDP) numbers to contract.
Rising inflation due to severe drought and a weakening currency have triggered a steep rise in lending rates over the past two years, strangling sentiment among businesses and consumers. The data prompted economists to forecast that first quarter GDP numbers expected today would show a contraction.
Read: Gloomy sentiment points to SA recession
Two surveys released yesterday indicated that although South Africa skipped a downgrade by S&P Global Ratings and might well do so again when Fitch releases its rating review probably today, the government would have to give serious attention to measures that promote the production side of the economy.
The business confidence index (BCI) by the SA Chamber of Commerce and Industry (Sacci) found South Africa’s business sentiment fell to a record low in May, hurt by poor performances in sectors such as manufacturing and retail.
The index fell to 79.3 points in May from 82.5 points the previous month. Sacci said May had been the first month in 2016 where business sentiment deteriorated on the previous month. The index had slipped to 79.6 points in December after President Jacob Zuma changed finance ministers twice within a week.
“The BCI suffered a setback as the gradual recovery to April 2016 from a historic low level of 79.6 points in December 2015 was undone in May 2016,” Sacci said in a statement.
The business organisation said setbacks in the real business environment were evident in May, with four of the seven subindices declining in April, while the financial climate deteriorated even more as there were no positive month-on-month movements in May.
“Seasonally adjusted merchandise import volumes had the largest negative month-on-month effect in May 2016, followed by real retail sales and a weaker weighted rand exchange rate against the US dollar, euro and the British pound,” it said.
Sacci said possible downgrades to South Africa’s credit rating posed a risk to business confidence. It said the government should focus on measures that promoted the production side of the economy.
The country has dodged downgrades from S&P’s Global Ratings and Moody’s, but analysts say a downgrade could be on the cards in December if policy measures failed to revamp an ailing economy.
Ratings agency Fitch was expected to publish its review on South Africa today, the Treasury said. Fitch has not said when it will publish its review.
Following a rating downgrade reprieve by Moody’s and S&P, Sacci said: “The Treasury and the Minister of Finance are positive about convincing investors that South Africa is addressing a possible finance overhang. Much has been done to create certainty, policy co-ordination, fiscal adjustment and prudency in public finance.”
Core importance
It said although a credit rating assessed a country’s debt service and repayment performance indicators, economic policy and the instruments to achieve it and the political environment in which public finance operates were of core importance.
And according to the Rand Merchant Bank/Bureau for Economic Research (BER) business confidence index, South Africa’s business confidence slipped to a seven-year low in the second quarter of this year as two thirds of businesses surveyed reported dissatisfaction with a fall in sales volumes for retailers.
The index, which is compiled by the BER, fell to 32 points from 36 points in the previous quarter, with confidence among retailers falling to a level worse than that seen during the 2008/09 global financial crisis. It said besides an 11-point drop over the past year, confidence was at its lowest level since the fourth quarter of 2009, when the index was on 28 points.
“Regarding the five sectors making up the BCI, confidence fell sharply among retailers, with sentiment also deteriorating, although not as much as in the building and wholesale trade sectors. Conversely, the mood improved somewhat among manufacturers and new vehicle dealers, but from very low levels.”
Nedbank chief economist at Nedbank Dennis Dykes said even without two consecutive quarters of contraction, widely accepted as indicating a recession, “for the year as a whole, we think growth will be barely above zero”.
* With additional reporting by Reuters
BUSINESS REPORT