Business confidence in the “other services” sector — which provides the latest trends and outlook for hotels, restaurants, transport, real estate and business services — fell in the fourth quarter, pointing to overall subdued sentiment in the SA economy.
According to the Bureau for Economic Research (BER), other services saw a six-point decline in confidence, resulting in the 2023 average confidence level now being almost 10 points below that of 2022, and consistently below the long-term average.
BER economist Katrien Smuts said the outcome implies that almost six out of 10 respondents are dissatisfied with prevailing business conditions.
“The general feeling that nothing fundamental has changed in the economy continues to restrain sentiment,” Smuts said.
The term “other services” is used to distinguish them from the retail, wholesale and motor trade sectors, which are also part of the services sector but included in the RMB/BER business confidence index (BCI).
“The other services sector is not included in the BCI due to its lagging business cycle characteristics. It recovers or deteriorates later than the BCI sectors,” Smuts said. She noted, however, that it contributed a considerable 22% to GDP.
The survey was conducted between October 25 and November 13.
The breakdown of the data shows confidence in the transport subsector edged down by one point to 45 but remains close to its long-term average of 47. Smuts said sentiment was dragged down by nonactivity factors such as crime.
The data shows confidence in the real estate subsector also steadily declined since reaching a peak of 56 in mid-2022 to just 8 in the fourth quarter.
“In fact, this is the lowest since second quarter 2020. Business conditions are worse, while business volumes rose by one percentage point this quarter, although they remain weak,” Smuts said.
The likeliest explanation for the bleak picture in this subsector is elevated borrowing costs due to high interest rates.
The data also shows that “all the underlying activity and demand indicators” including expectations deteriorated in the business services subsector.
The BER said confidence fell by 17 points to 42 after it remained consistent at 59 between the second and third quarters.
Smuts said the only subsector with increased confidence relative to the third quarter was hotels and restaurants. Confidence rose by 7 points to 74 in the fourth quarter.
The increase in confidence was supported by an uptick in business conditions, greater business volumes, and higher selling prices. “Confidence in this sector has steadily increased from a record-low of zero, measured at the height of the lockdown in 2020, to what is now an above-average confidence level,” she said.
Data shows that business volumes also remained strong in the fourth quarter, she said, lifting by 11 percentage points for the first positive reading this year.
“In fact, business volumes have remained resilient, above long-term average levels. There were some very specific factors boosting business volumes in the hospitality and transport subsectors, but this is not sufficient to pull through to higher confidence across the different sectors,” Smuts said.
Another positive note is the sustained moderation in consumer inflation and a modest cutting cycle expected to start in mid-2024, she said. This may boost the local consumer and aid the suffering real estate sector.
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