JOHANNESBURG – South Africa's business confidence slid to its lowest this year in the third quarter, dragged lower by a slump in sentiment in the manufacturing sector.
The Rand Merchant Bank/Bureau of Economic Research (RMB/BER) business confidence index shed 1point to 38 points in the third quarter from 39 points in the previous period, but way lower than the 45 points registered in the first quarter at the height of “Ramaphoria”.
“The underlying South African business landscape continues to weaken, with more sectors showing signs of strain. While confidence hasn't yet fallen to the levels observed during the previous recession of 2009, we remain deeply concerned about the prospects,” said Ettienne le Roux, the chief economist at RMB.
Confidence in the manufacturing industry plunged to 21 points in the period under review from 27 points in the prior period, while sentiments in the wholesale sector tanked to 49 points from 62 points.
The data also showed that sentiment remained steady for retailers at 33 points. However, confidence improved slightly among building contractors to 45 points from 37 points, while it also inched up for vehicle dealers at 41 points from 35 points.
“Close to 80 percent of businesses operating in the manufacturing industry now feel conditions are unsatisfactory for running their enterprises. This statistic should be very worrying for government as it foretells the risk of a poor third quarter for the manufacturing industry, a key component of GDP,” said Annabel Bishop, the chief economist at Investec.
The data released by Statistics South Africa yesterday provided welcome relief for the ailing manufacturing sector.
The figures showed output in the sector recorded its biggest increase since June of 2016.
Manufacturing production increased 2.9 percent year on year in July and above market expectations of a 1.1 percent gain. Data released last month showed the manufacturing sector led the jobs in the second quarter bloodbath with 108 000 jobs lost during the quarter.
The stronger-than-expected growth in manufacturing recorded in July suggested that the economy made a good start to the third quarter following a contraction in the prior quarter that sent the economy into a recession.
William Jackson, the chief emerging markets economist at Capital Economics, said the manufacturing data provided some rare good news for the economy.
“However, more timely surveys suggest that this recovery has been fitful over the course of the quarter,” Jackson said.
The Absa manufacturing purchasing managers index for August plunged 8.1 points to 43.4 points – the lowest reading in more than a year.
The sharp decline in last month's reading was on the back of a slowdown in the new sales orders index as well as the business activity index.