SENTIMENT in the business industry has been dealt a blow and plunged to its lowest in one year in the second quarter of 2022 as the devastating floods in KwaZulu-Natal and higher costs of doing business slowed manufacturing production.
The Business Confidence Index (BCI), compiled by the Bureau for Economic Research (BER), fell from 46 points to 42 points in the second quarter, firmly remaining below 50 points which separates contraction from expansion.
This was a similar level to that recorded in the second half of 2021 as various shocks over the past year contributed to keeping confidence this low, and many uncertainties remain.
The BER said that a reading of 42 indicated that almost six out of 10 respondents viewed prevailing business conditions as being unsatisfactory.
It said that although manufacturers and new vehicle dealers experienced a sharp deterioration in sentiment, building contractors by contrast turned decisively more upbeat.
The BCI has surged from a low of just 5 points at the onset of the pandemic to 50 in the second quarter of 2021 supported by the gradual lifting of Covid-19 restrictions.
Since then, however, and buffeted by various adverse shocks such as the July 2021 riots, labour strikes, the war in Ukraine, KZN floods and others, business confidence has remained stuck in the low 40s.
The BCI, which is sponsored by Rand Merchant Bank (RMB), was conducted between 11 and 30 May, covering around 1 300 executives in the building, manufacturing, retail, wholesale and new vehicle trade.
RMB chief economist Ettienne le Roux said although the impact that some of these shocks had on the BCI was wearing off, there was still plenty for business people to be anxious about.
Le Roux said global energy and food prices were likely to remain high for longer as the stagflationary shock would see economic growth in South Africa’s key trading partners moderate sharply.
He said locally the country’s electricity supply remained as unstable as ever, all the while when rising inflation and increasing interest rates would continue to erode households’ spending power.
“There is nothing the government can do about the global headwinds facing the country, but it can advance growth-boosting domestic reforms,” Le Roux said.
“Best the government pushes hard and builds on the successes Operation Vulindlela has already achieved over the past year.”
The BCI found that manufacturing confidence plunged from 43 to 29 points in the second quarter, as the temporary closure of the Toyota Motors SA plant in KZN affected overall manufacturing production and exports.
On top of this, production also came off the boil in most other sub-sectors, except for food manufacturing.
Motor confidence crashed from 54 to 29 points mainly due to stock shortages, a dynamic that has its roots in a global scarcity of certain parts and components that continues to restrict local auto manufacturing.
Investec chief economist Annabel Bishop said businesses would continue to worry about the ebbing purchasing power of consumers, coupled with the impact of higher interest rates, which would also negatively impact business sentiment in the third quarter.
Bishop said South Africa’s inflation rate was not yet at a peak, with higher cost pressure to come for businesses.
“While we currently expect a peak of 6.8 percent year-on-year in June, there is around another R2.00/litre hike building for the petrol price in July, which will add significantly to living costs,” Bishop said.
“Yesterday’s better than expected GDP (gross domestic product) print for the first quarter of 2022 will add to the pressure for higher interest rates, and a 50 basis points hike at the SA Reserve Bank’s July meeting seems more likely now than a 25 basis points lift.”