By Asha Speckman for TimesLive
The economy was unlikely to shake off anaemic growth in the second quarter of this year‚ economists said on Tuesday after a dip in the South African Chamber of Commerce and Industry (Sacci) Business Confidence Index confirmed their concerns.
The Sacci Business Confidence dipped to 93.7 index points in June from 94 index points previously. The index has slipped each month from a high of 99.7 in January this year.
John Ashbourne‚ Africa economist at Capital Economics said: “The latest drop strengthens our view that South Africa’s economy remained weak in quarter two.”
Economic growth contracted by 2.2% in the first quarter of this year after a stronger finish in 2017.
The Sacci index is a measure of business activity and is based on several indicators including energy production‚ trade figures and the performance of financial markets.
Seven of the thirteen sub-indices reflected negativity in the business environment.
The largest negative influences were the weaker rand exchange rate‚ lower real retail sales‚ a decline in the value of building plans passed and higher energy costs.
A rise in merchandise import and export volumes and new vehicle sales impacted positively.
The risk of a global trade war and potential knock-on effects also weighed negatively on the outlook from certain industries in South Africa‚ the survey noted.
Ashbourne anticipated further clarity when mining and manufacturing production and sales data for May are published on Thursday.
Weakness in these sectors is‚ however‚ expected to continue. The recent Absa purchasing manufacturer’s index‚ which measures activity in the manufacturing sector‚ dropped to 47.9 index points in June from 49.8 in May.
The index reading was 50.9 in April. A reading below the 50 neutral mark indicates a possible slowdown in business activity.
Lara Hodes‚ an economist at Investec‚ said about second quarter growth: “We’re not expecting positive news.”
Hodes said growth in mining was tempered by continued uncertainty over the mining charter and a restrained investment.
Investec expects an improvement to -3.5% for mining in May compared to -4.3% previously. It has forecast manufacturing to be -1.4% from 1.1% in April compared to a BNP Paribas expectation of 0.1% growth from 1.1% previously. However‚ Hodes said retail trade sales and consumer confidence data to be released next week would complete the picture.
Ashbourne said the potential slowdown had prompted London-based Capital Economics to temper its growth forecast for the year to 1.3% from 2% previously.
National Treasury has forecast 1.5% for the year and the Reserve Bank expects 1.7%.
Sacci said: “It has become imperative that structural economic matters hampering inclusive economic growth should be addressed with economic rationality. Uncertainties surrounding economic policy direction and position should be clarified so that investor and business confidence can reaffirm itself.”
SA’s business confidence firmed further in January, after making gains in December.
The South African Chamber of Commerce and Industry’s (Sacci’s) business confidence index rose 3.9 points to 97.7 in January from 93.8 in December.
The BCI was also higher than a year ago, rising 5.1 points from 92.6 in January 2016.
The January reading marked the largest positive month-on-month change in the BCI since February 2015, when it rose 4.1 points, and the biggest year-on-year increase since May 2011.
Sacci said the BCI had recovered in October, November and December, and this recovery had accelerated in January 2017 — pointing to a normalisation of the business climate in SA despite uncertain local and global economic and political conditions.
The chamber said the index suggested improved prospects for business in 2017 after a challenging and turbulent 2016.
“If these conditions could continue to carry the day, then the momentum gained in business confidence could accelerate and create the necessary investment and economic growth atmosphere,” Sacci said.
“It is further imperative that SA stay abreast and adapt to international and global changes that stand to impact on SA, global trade conditions, the local economy and the business community,” it said.
More BCI subindices made month-on-month gains in January than in December. Eight of the 13 subindices gained, two were unchanged and three declined in January. In December, only five subindices gained.
Four of the 13 subindices improved on a year ago, while three remained virtually unchanged.
Factors Sacci highlighted for their influence on the January BCI were the rand exchange rate (positive), the increased real value of building plans passed (negative), the higher gold and platinum price, and a larger number of new vehicle sales.
By Pericles Anetos for www.businessday.co.za
After plumbing depths last recorded during the height of SA’s recession, business confidence looks to be moderately on the up, according to the South African Chamber of Commerce and Industry’s (Sacci’s) business confidence index.
The index on Monday moved up to 96 in July, from 95.1 in June.
Strong business confidence correlates with an increased appetite for investment by the private sector.
At the end of March, however, nonfinancial private companies had R725bn on deposit in South African banks, up from R670bn a year earlier, Reserve Bank data showed.
Companies are hoarding cash or expanding abroad – put off by a stagnating economy, power shortages, low commodity prices and slower growth in export markets. Delays in passing business regulations are compounding their unease.
Sacci CEO Alan Mukoki says that although global and local conditions are improving, there were many uncertainties – including what would happen at hung municipalities and the timing of the next US interest rate hike, which would have a bearing on the rand.
The other variables that will affect sentiment among business include local interest rates, the state’s ability to deliver on infrastructure spending amid rising borrowing costs and the oil price. The firmer rand, slightly higher commodity prices and exports, and better retail sales all helped buoy business confidence – some of the very factors companies have cited for snubbing investing in SA.
Improved energy supply also lifted confidence, Eskom having managed to keep the lights on. Sacci has, however, called for caution to be exercised on “vulnerable economic issues,” especially with SA facing the prospect of a rating downgrade in December.
“We don’t know how monetary authorities will respond to factors like union members who get above-inflation wage settlements. We also don’t know if government will be able to deliver on its outstanding infrastructure spending with borrowing becoming more expensive,” he says.
An interest rate hike in the US could weaken the rand, which in turn can have a negative effect on the inflation outlook and may support further rate increases by the Reserve Bank.
A concerted effort was needed to avoid even tighter economic conditions in 2017 because lower growth would put pressure on public finances, unemployment and the cost of borrowing, Sacci says.
Economic growth is expected to be closer to zero in 2016 and just around 1% in 2017.
Sacci’s index is based on developments around 13 economic indicators – including energy supply, manufacturing, exports, imports, vehicle sales, retail sales, the construction of buildings, inflation, share prices, real private sector borrowing, real financing cost, precious metal prices and the rand exchange rate.
There were marginally fewer impediments in the real business environment in July compared to June, Sacci says.
At 96 in July 2016, the index was still lower than the 101.8 recorded in July 2015, suggesting that business confidence is yet to fully recover.
By Ntsakisi Maswanganyi and Bloomberg for BDlive