Business confidence survey shows 61% dissatisfied with business conditions

The latest business confidence survey shows that 61% of respondents are dissatisfied with prevailing business conditions, with building contractors and manufacturers becoming even more despondent, and new car dealers looking up although they do not have stock.

The RMB/BER Business Confidence Index (BCI) decreased further from 42 to 39 in the third quarter, but although this looks like a disappointing outcome, the underlying picture is not as bad as the lower BCI implies, according to said Ettienne le Roux, chief economist at RMB.

The third quarter survey was conducted between 10 and 29 August, among about 1 200 senior executives at companies of varying sizes in the building, manufacturing and trade sectors, across all provinces in the country.

Retailers became more confident in the third quarter, with the index increasing from 49 to 51, well above its long-term average of 40.

“Given depressed consumer confidence, rising inflation and rising interest rates, retail confidence could easily have taken a knock,” Le Roux says.

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Grants and more jobs saved the day for business confidence

“Fortunately, this force was neutralised with the resumption of SRD grant payments and a recovery in employment, particularly in the hospitality sector. This bolstered spending on essentials, such as food and beverages, while sales of clothing also continued at a heady pace.”

Improved turnover enabled these retailers to handle higher operating costs which, in turn, propped up profitability and confidence. On the other hand, sentiment among wholesalers deteriorated from 58 to a still high 50.

“Although the pace of growth in sales volumes of consumer and non-consumer goods moderated from earlier record highs, it nevertheless remained quite strong,” Le Roux says.

He says low stock levels continue to make life difficult for new car dealers.

“While the re-start of production at the Toyota plant in KwaZulu-Natal brought about some relief, the combination of a constant global shortage of computer chips delaying new vehicle manufacturing and erratic deliveries of imports continued to prevent dealers from fully satisfying increased demand.”

Although the sentiment in this sector is volatile, its confidence bounced back to 40 after falling from 54 to 29 in the second quarter. In contrast, sentiment among building contractors deteriorated by 17 points to 29 in the third quarter.

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Business confidence sapping factors in building industry

“While the full extent of this deterioration is hard to square with somewhat livelier building activity particularly in the non-residential sector, it emphasises the impact of several confidence-sapping factors, such as ongoing delays in the authorisation of building plans, the postponement of tenders, persistent shortages of certain materials, load shedding and the lack of working capital, due to, among other things, continued late payments by the public sector,” Le Roux says.

In manufacturing, confidence eased slightly further to 26 in the third quarter, notwithstanding an improvement in domestic and export sales volumes, as well as production receiving a boost from the reopening of the Toyota and other flood-damaged plants in KwaZulu-Natal and less intense load shedding in August.

Le Roux says while the third quarter drop in the index to below 40 is disappointing, it is unlikely that this points to another outright contraction in real GDP because confidence among retailers and wholesalers remains well above long-term averages, which emphasises the surprising resilience of consumer spending at a time when falling inflation in due course should ease the pressure on disposable income.

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Manufacturing and building stronger than they seem

“Simultaneously, underlying activity in the building as well as the manufacturing sector is stronger than third quarter confidence figures seem to imply. We also note that fixed investment in manufacturing, after a temporary drop in the second quarter, resumed its upward trajectory to a level that is now close to its long-term average.”

Le Roux says while you cannot predict that the economy will experience strong growth in the year ahead, suggestions that the economy is now in the throes of a protracted recession after the latest gross domestic product (GDP) release, is an overstatement although external headwinds are mounting, interest rates keep increasing and the danger of summer power outages is ever present.