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Business confidence plummets to five-year low

Business confidence plummets to five-year low

Photo by Duane Daws

26th November 2015

By: Megan van Wyngaardt

Creamer Media Contributing Editor Online

  

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Business confidence has dropped by a full 15 points over the past year to reach its lowest level in five years, the latest Rand Merchant Bank (RMB)/Bureau for Economic Research (BER) Business Confidence Index (BCI) has shown.

After falling from 43 to 38 in the third quarter, it fell by a further two points to 36 in the final quarter of the year, which Investec economist Annabel Bishop warned was concomitant with an economy still at risk of very weak growth, if not recession.

“The continued depressed nature of business confidence does not bode well for future gross domestic product (GDP) growth both in this last quarter and in 2016, an indication which is also supported by the latest leading indicator. This is also in line with the higher taxes and interest rates mooted by the authorities,” she said.

As for the five sectors making up the RMB/BER BCI, confidence declined in three, increased in one and remained steady in another.

New vehicle dealers suffered a further eight-point deterioration in sentiment to 19, as sales volumes continued to decline in the fourth quarter. Confidence in this sector was now also at its lowest level since the recession of 2009.

In contrast, retail confidence rose by six points to a still-low 40. This level was still a good 20 points lower than the recent peak of 60. A sign of the weakness of effective demand was that many retailers had to further trim price increases just to sustain moderate sales growth.

Confidence among building contractors fell from 45 to 39, as many existing commercial projects had been completed and few new ones came on stream. The fall in the overall level of building confidence would have been even larger were it not for residential building activity showing some improvement.

Wholesalers' confidence also edged lower, falling by three points to 47 in the fourth quarter. A slight deterioration in overall profitability reflected the fact that only a few wholesalers had been able to raise selling prices in response to higher purchase price increases, while still maintaining some volume growth.

As for manufacturing, confidence remained unchanged at 34. This mirrored production growth, which continued to track sideways at weak levels. As for patterns in overall sales volumes, stronger growth in domestic sales by manufacturers of mainly nondurable consumer goods compensated for export growth, which lost some momentum.

That the RMB/BER BCI fell by only two points despite underlying activity in sectors such as retail, new vehicle trade and manufacturing weakening by more than it had done in the third quarter, was surprising.

One explanation could be that some respondents had been relieved by conditions in the fourth quarter not turning out as bad as they had thought at the time of the survey. Another was the absence of load-shedding in recent weeks that may well have lifted the mood somewhat, particularly for energy intensive businesses.

Even so, the latest BCI result suggested that real GDP growth moderated further in the fourth quarter, compared with the same period in 2014.

"In aggregate, growth of around 1% to 1.5% seems like the most probable outcome for this year, with a very similar prognosis for 2016 at this stage. And all this, of course, assuming that the current drought does not get any worse," said RMB chief economist Ettienne le Roux.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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