Business confidence decreased in the second quarter of the year on the back of trade uncertainties between SA and the US and local logistics problems, the RMB/BER business confidence index shows.
The index dropped to 40 points from 45 in the first quarter of the year, according to the survey conducted in May. Despite signs of optimism in equity markets after a brief pause in US reciprocal trade tariffs, the diplomatic relationship remained tense throughout the survey period.
“The majority of the respondents are thus pessimistic about trading conditions. While remaining above the average of 2023 and 2024, confidence is now a touch below the long-term average level,” RMB said.
Diplomatic relations between the US and SA remained tense during the survey period, while optimism returned to equity markets after a 90-day pause in the US reciprocal trade tariffs.
“Still, the global trade uncertainty and continued local logistical issues were flagged by respondents as factors negatively affecting their businesses,” the compilers of the index said.
Business Day previously reported that SA had submitted a package of trade deals to the Trump administration for consideration with the aim of easing tensions between the two countries.
The decline in business confidence, especially among sectors sensitive to global relations, underscores the influence of SA and US diplomatic tensions on the domestic economic outlook.
Other factors leading to the slip in confidence include the political turmoil over the now withdrawn VAT increase and uncertainty that arose over the DA’s participation in coalition government.
News about the government of national unity (GNU), and the DA’s continued participation in it, was mixed over the time period, with fears of an imminent collapse easing a little through May.
— RMB
The reading of 40 from a previous reading of 45 means the majority of businesses are pessimistic of overall conditions in SA.
“Respondents would have known that the contentious proposed VAT hike was off the table, but many questionnaires were returned before the tabling of Budget 3.0 on May 21. News about the government of national unity, and the DA’s continued participation in it, was mixed over the time period, with fears of an imminent collapse easing a little through May,” RMB said.
Drops in four sectors
The confidence decline was driven by drops in four sectors, partially offset by a rise in wholesale trade confidence. Wholesale traders were the only sector to show increased confidence, reaching 50 points, while confidence among the retail trade sector decreased by eight points to 42.
“Motor trade dealers saw a slightly bigger drop of 10 points, but also to 42 in the second quarter. Generally, respondents in the sector remained fairly upbeat about business conditions and sales volumes, which underscores that the consumer likely still fared fairly well in the second quarter,” RMB said.
“The 25 basis point reduction in the policy interest rate (which took place after the survey period but was largely expected) could provide some further support, though this is countered by an increased personal tax burden.”
Sentiment among building contractors declined by 10 points to an almost three-year low of 35 points, while confidence in the manufacturing sector remained unchanged at 33.
“The fact that confidence in four of the five subsectors declined and that (for two consecutive quarters) confidence in three of the five subsectors declined suggests that momentum in overall economic activity slowed down,” said RMB chief economist Isaah Mhlanga.
“During this period, just two sectors — wholesalers and new vehicle dealers — alternated to do the heavy lifting, but it was insufficient to lift confidence this quarter.”
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