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Business confidence remained subdued in the third quarter of this year as the cloud of geopolitical and global trade uncertainty continued to hang over the private sector, with many companies facing weak demand for their products.
Local government elections, set for November 4, will be key to boosting confidence for the rest of the year, with respondents in the latest Rand Merchant Bank/Bureau for Economic Research (RMB/BER) survey flagging concerns around municipal service delivery, poor infrastructure and policy uncertainty.
The RMB/BER business confidence index (BCI) edged one point lower to 38 in the third quarter, with 62% of respondents surveyed being dissatisfied with prevailing operating conditions. The index remains slightly below its long-term average of 40 and well below the recent high of 47 reached in the first quarter of the year.
The survey took place on August 13-24, with some of the immediate pressures associated with the oil and fuel price shock triggered by the US-Iran war having started to ease, but caution still prevailed as firms awaited renewed impetus to lift confidence and activity.
“Some of the acute pressures that weighed on sentiment in the second quarter have eased, particularly input costs,” RMB chief economist Isaah Mhlanga said.
“However, this has not yet translated into a broad improvement in demand or activity. The sectoral picture remains mixed, and businesses are still grappling with uncertainty around both the global environment and domestic operating conditions.”
Greater clarity around municipal governance and infrastructure delivery after the elections could support sentiment, while heightened uncertainty could further delay spending and investment decisions, RMB and the BER said.
“Business confidence has stabilised, but at a level that remains too low to support the stronger investment and employment growth South Africa needs,” said Mhlanga.
“A sustained improvement will require better demand conditions, continued reform progress and greater certainty in the operating environment, particularly at local government. The elections could therefore be an important marker for sentiment in the final quarter of the year.”
South Africa’s private sector has expressed concerns about governance shortcomings in municipalities, particularly in the economic hub of Johannesburg.
Earlier this year, Business Unity South Africa, Business Leadership South Africa and Business for South Africa urged President Cyril Ramaphosa’s administration to do all in its power to facilitate urgent reforms that city-level leadership has failed to deliver.
The latest BCI report showed that confidence declined in four of the five subsectors that make up the headline index, with the exception of retailers, whose index rose by nine points to its long-term average of 40.
The building contractors index pointed to increasing pressure in non-residential building activity amid signs of weaker government-related project activity. By contrast, the survey showed tentative signs of improvement on the residential side, supported by a more encouraging broader project pipeline.
Wholesalers of consumer goods reported an improvement in sales, but sales among non-consumer-goods wholesalers deteriorated.
Manufacturers’ confidence recorded the second-largest decline, falling by four points to 27, the lowest level among the five sectors surveyed and below its long-term average. The partial reversal in the acute cost pressures seen in the second quarter did not translate into stronger activity during the third.
Domestic sales remained weak, while export volumes deteriorated amid weaker global growth and lower capacity utilisation.
The largest decline was among new-vehicle dealers, where confidence dropped by 11 points to a long-term average of 38 amid higher stock levels relative to demand.
The confidence measure among businesses in Gauteng improved by four points to 30, though it remained well below the readings in KwaZulu-Natal and the Western Cape, as well as its own long-term average. KwaZulu-Natal was unchanged at 40, while the Western Cape declined by nine points to 46.
“There are pockets of improvement, though sentiment remains downbeat overall,” RMB and the BER said.
Business Day
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