RMH’s market capitalisation is about R77 billion, while FirstRand has grown in leaps and bounds, with a market capitalisation of more than R234bn.     Reuters
RMH’s market capitalisation is about R77 billion, while FirstRand has grown in leaps and bounds, with a market capitalisation of more than R234bn. Reuters

Business confidence at rock bottom as economic activity tumbles on lockdown regulations

By Siphelele Dludla Time of article published Jun 11, 2020

Share this article:

JOHANNESBURG – Business confidence in South Africa plunged to a low in the second quarter as economic activity tumbled on the lockdown regulations.

The Rand Merchant Bank/Bureau for Economic Research (RMB/BER) Business Confidence Index (BCI) plummeted to five points from 18 points in the first quarter.

The group said yesterday that the deceleration was the lowest recorded since the survey was first conducted in 1975.

It said the pace of recovery was expected to be restrained to pre-lockdown levels as businesses remain very pessimistic about conditions.

South Africa went into a lockdown of almost all non-essential economic activity as a first step to deal with the coronavirus pandemic at the end of March. 

RMB said the plunge was consistent with a contraction in real gross domestic product which has never been seen before, as the economy was already in recession. 

Until now, the lowest BCI on record was the 12 index points measured during the fourth quarter of 1977 and again during the third quarter of 1985, both due to adverse political developments.

RMB chief economist Ettienne le Roux said Covid-19 and the subsequent restriction of economic activity produced a huge confidence shock.

Le Roux warned that the factors that resulted in the plunge in sentiment could have far-reaching implications on the country’s long-term growth potential if left unchecked.

“Covid-19 has drastically changed the already-weak economic landscape and perhaps, in some cases, permanently,” said Le Roux. 

“We are likely only beginning to fully appreciate the complexity of the economic impacts of this pandemic.” 

Sentiment declined in all five sectors making up the overall RMB/BER BCI during the quarter.

RMB said retail confidence dropped from 18 to 11 points, while motor vehicle sales fell from an already-low 16 points in the first quarter to only 2 index points in the second quarter.

Building activity confidence dropped to two points from 15 points, the wholesale confidence fell from 25 to 4 index points, and manufacturing confidence declined from 17 to 6 points.

The second-quarter survey was conducted online between May 13 and June 1, and it covered about 1 800 executives from the building, manufacturing and the domestic trade sectors.

RMB said the gradual lifting of the lockdown restrictions and the resumption of economic activity might lift confidence.

It said the uncertainty over how the Covid-19 infection curve developed was, however, an important reason for caution.

Investec’s chief economist, Annabel Bishop, said the very slow process of reopening the economy one level per month had quelled business confidence.

“The likelihood of a strong recovery in the third quarter has diminished, given the extreme nature of the lockdown measures and their lengthening,” Bishop said. 

“Most in the private sector will see markedly lower incomes this year compared with last year, not just due to salary or wage cuts, but also due to substantial loss of additional incomes.”

BUSINESS REPORT

Share this article:

Related Articles