Ethel Hazelhurst

Business confidence fell in the fourth quarter – but not as much as expected.

The business confidence index compiled by the University of Stellenbosch’s Bureau for Economic Research (BER) dipped only one point to 46 in the current quarter.

However, the BER warned: “Although confidence remained stable, all is not well. Business conditions deteriorated faster in most sectors, compared to a year ago and manufacturers shelved investment and employment plans due to heightened uncertainty and the substantially bigger constraining impact of the general political climate.”

Investec chief economist Annabel Bishop noted the index fell below its long-term average since 1980 of 46.7.

But the latest figure could have been worse, given the labour unrest in the mining and transport sectors, according to Rand Merchant Bank chief economist Ettienne le Roux.

He noted the business mood among manufacturers improved slightly, with the sectoral index climbing five points to 38. “Given its close association with mining, the impact of the wildcat strikes could easily have resulted in a sharp drop in manufacturing confidence. That it did not points to an important countervailing factor: domestic sales volumes turned out stronger during the fourth quarter than most respondents had initially anticipated, which also made up for weaker exports. As a result production levels picked up, which somewhat lifted spirits.”

In line with manufacturing, retail and wholesale confidence continued to rise due to the comparative strength of consumer spending. Sentiment about building activity also improved. The exception on the composite index was the new motor vehicle trade, which fell 25 points to 54.

The result could be seen as a sign that businesses are likely to increase investment spending, creating job opportunities in the process. In the second quarter capital investment by the private sector grew only 2.4 percent, while that of public corporations grew 9.1 percent and government 15.7 percent.

However, an acceleration in investment is unlikely: the stronger-than-expected sales volumes may be the result of a last fling by heavily indebted consumers. Data from banks show consumers are increasing their debt load.

Barclays Research notes that business confidence has been weak since the economy turned in the third quarter of 2009, “managing to edge above the neutral 50 line only twice – in the first quarter of last year and the first quarter of this year”.

The weak sentiment was also captured in the Kagiso purchasing managers’ index for October, which declined by 1.2 points to 47.1, the lowest level since July last year.

The outlook for the economy continues to deteriorate. Elna Moolman, the South Africa economist at Renaissance Capital, forecast 2.4 percent growth this year and 2.7 percent next year. The latter is below the consensus and government forecasts of 3 percent and the Reserve Bank’s 3.4 percent.