Business confidence takes another knock due to various shocks hit economy


Various shocks have knocked business confidence down again from 46 to 42 in the second quarter of 2022, a similar level to the second half of 2021.

A score of 42 means that almost six out of ten respondents consider prevailing business conditions as unsatisfactory.

The survey for the RMB/BER Business Confidence Index (BCI) was conducted between 11 and 30 May and covered around 1300 executives in the building, manufacturing, retail, wholesale and new vehicle trades.

Although the headline result is discouraging, it hides large variations among the sectors. While manufacturers and new vehicle dealers experienced a sharp deterioration in sentiment, building contractors became decisively more upbeat.

On the other hand, confidence among retailers and wholesalers remained largely unchanged and at relatively high levels.

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Manufacturing sector

Manufacturing confidence crashed from 43 to 29, primarily due to the significant direct and indirect impact of the temporary closure of the Toyota plant in Durban due to flooding that affected overall manufacturing production and exports.

To make matters worse, production also slowed in most other sub-sectors, except food manufacturing.

Motor confidence also crashed from 54 to 29, mainly due to stock shortages brought on by a global shortage of certain parts and components that continues to restrict local auto manufacturing. The temporary closure of the Toyota plant in Durban made things even worse.

Building confidence, in contrast, vaulted from 25 to 46, extending a gradual improvement since sentiment hit rock bottom during the height of the Covid pandemic.

Contractors in the residential property market experienced a notable increase in activity in the second quarter, but the same cannot be said of the non-residential sector where activity stabilised at a slightly improved, but still depressed, level.

Compared to the other sectors, confidence in construction took the longest time to return to pre-pandemic levels.

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Retail sector

While retail confidence remained unchanged at 49, wholesale confidence edged up slightly further to 58.

Although building and retail confidence are now the two sectors with the highest index levels, the results varied notably among respondents.

Durable goods retailers that sell, for example, furniture, appliances and DIY, saw a further deterioration in sales volumes, but retailers selling semi-durable goods such as clothing and footwear noticed continued improvement, although it was from a low base.

Sales volumes of non-durable goods, such as food, were surprisingly strong in the second quarter, while wholesalers and suppliers of consumer goods had a better quarter than suppliers of non-consumer goods such as chemicals and machinery, where sales volumes fell.

Price increases became even more widespread in retail and wholesale.

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The rise of business confidence

As virus restrictions were gradually lifted, the BCI surged from a low of just five at the onset of the pandemic to 50 in the second quarter of 2021, but since then, buffeted by various adverse shocks, such as riots, strikes, war and floods, business confidence remained stuck in the low 40s.

Although the impact of some of these shocks is wearing off, there is still much for businesspeople to be anxious about.

Global energy and food prices are likely to remain high for longer, while real economic activity in China is faltering and the stagflationary shock amplified by the raging Russia-Ukrainian war will see GDP growth in two of South Africa’s key trading partner countries, the UK and Europe, moderate sharply.

Locally, the country’s electricity supply remains unstable, while rising inflation and increasing interest rates will continue to erode households’ spending power.

“There is nothing government can do about the global headwinds facing the country, but it can advance growth-boosting domestic reforms. Government should push hard and build on the successes Operation Vulindlela already achieved over the past year,” Ettienne Le Roux, chief economist at RMB, says.

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