Filomena Scalise

The latest Rand Merchant Bank/Bureau for Economic Research Business Confidence Index (RMB/BER BCI) fell one point to 46 in the fourth quarter from 47 the quarter before. The index was released on Tuesday.

A reading of above 50 indicates optimism as opposed to pessimism if the index level falls below 50.

BER noted that the one point decline meant that slightly more than half of respondents remained downbeat about prevailing business conditions.

Sentiment improved in four of the five sectors making up the composite index.

New motor vehicle trade was the exception where confidence fell during the fourth quarter. The large 25 index point drop to 54‚ partly the result of seasonal factors‚ fully offset the increases‚ of varying degrees‚ in the other sectors.

The business mood among manufacturers improved slightly further‚ with the index climbing by five points to 38.

Given its close association with mining‚ the impact of wildcat strikes could easily have resulted in a sharp drop in manufacturing confidence.

BER said the fact that manufacturing confidence did not deteriorate pointed to an important countervailing factor‚ that domestic sales volumes turned out stronger during the fourth quarter than most respondents had initially anticipated.

As a result‚ production levels picked up which somewhat lifted spirits.

The confidence of retailers and wholesalers continued to rise.

“Both sectors reflect the continued comparative strength of consumer spending. Sales of non-durable goods in particular‚ which had been lagging that of durables and semi-durables‚ posted robust growth in the fourth quarter‚” the BER noted.

The building contractors sector posted the smallest increase in confidence‚ rising only two points to a still depressed level of 28. The recovery in building activity remained slow and mediocre at best‚ according to the BER.

Whereas overall business confidence remained stable in the fourth quarter‚ the survey results also contained worrying information.

While the profitability of some sectors improved in the quarter relative to initial expectations‚ general business conditions across all sectors worsened further compared to a year before.

“In this regard‚ the deterioration was especially pronounced in the case of motor trade‚ wholesale trade and manufacturing‚” the BER said.

Also‚ while fixed investment in the manufacturing sector held its own in the fourth quarter‚ few respondents expected this to last.

The majority of manufacturers anticipated investment to contract notably in the first quarter of next year‚ and to stay weak on a 12 month horizon. Plans to cut capex can largely be attributed to greater uncertainty in general‚ and the domestic political climate in particular.

The percentage of manufacturers rating the political climate as a constraint on their business jumped from 58% to 73%. This is the highest percentage since the very uncertain period before SA’s first democratic elections.

BER expected consumer spending and domestic demand to continue to prop up the economy in the months ahead.

There were signs that the general deterioration in labour relations‚ wildcat strikes‚ and the domestic political climate were already beginning to negatively affect businesses’ investment intentions.

“If what are still just plans to cut capex become reality‚ the longer-term economic growth and employment creation potential of the economy will no doubt be endangered”‚ said RMB chief economist Ettienne le Roux. - I-Net Bridge