Business confidence declined in July, weighed down by reduced merchandise export volumes, higher real financing costs and the weak rand, according to the SA Chamber of Commerce and Industry (Sacci) business confidence index on Thursday.
The Sacci business confidence index declined 1.5 index points in July to 107.3, from June’s 108.8 — when the energy supply stabilised slightly — and May’s 106.9.
On a month-on-month basis, all eight real economic activity indicators of the BCI affected business confidence negatively in July. The index fell three index points compared with the previous year.
Sacci CEO Alan Mukoki said the index has remained stagnant over the past four months, suggesting a struggling business climate for economic activity.
“This environment hinders improved longer-term prospects for the economy, resulting in limited fixed investment and inadequate conditions for robust economic growth and job creation,” Mukoki said.
Business confidence in SA has been affected by global and domestic matters hitting economic activity.
In its July updated outlook of the global economy, the IMF said world economic growth is expected to fall from an estimated 3.5% in 2022 to 3% in both 2023 and 2024. There are also fears that China’s economic growth may slow even more, causing further knock-on effects with negative impacts on the global economy.
SA is expected to have very low positive growth in 2023 while 2024 might see growth of about 1.5%, the Washington-based institution said. The SA Reserve Bank forecast growth of 0.4% in 2023, 1% in 2024 and 1.7% in 2025.
Remaining sticky
Tighter monetary policy through higher interest rates to confront inflation has also weighed on real economic activity.
Sacci economist Richard Downing said while global inflation is anticipated to decline by about 2 percentage points, core inflation is expected to decrease more slowly in 2024 with general inflation remaining sticky.
“Inflation remains vulnerable to exogenous factors such as an escalation of the war in Ukraine, extreme weather, credit financing, and recurrent fiscal spending,” Downing said. “This might prompt restrictive monetary policy.”
He added sovereign debt distress could spread to a wider group of economies.
Sacci also warned that pressures on the fiscus globally for social relief spending by the public sector will continue to push debt ceilings.
The need for social support in SA will also remain a constant pressure on budgetary resolutions.
Downing said while the IMF also supports the idea that countries should provide liquidity amid market strains, it advises that fiscal buffers should be set up with fiscal adjustment ensuring targeted support for the most vulnerable.
“Improvements to the supply side of the economy will be essential to result in fiscal consolidation.”
Sacci also raised the issue of the country’s current account of the balance of payments that has lately widened from surpluses in 2021 and 2022 to deficits of 0.5% of GDP in 2022.
Downing said the deficit is expected to deteriorate further to 2.5% in 2023, 3.1% in 2024, and 3.6% of GDP in 2025.
Mukoki said such a business climate does not enhance longer-term prospects for the economy.
“The global economic environment is also not very helpful at present to SA as an open economy and investment destination for much-needed foreign capital and foreign investment,” he said.
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