Index points to cautious business confidence 

10th July 2018 By: Simone Liedtke - Writer

Index points to cautious business confidence 

Photo by: Bloomberg

The South African Chamber of Commerce and Industry’s (Sacci’s) Business Confidence Index (BCI) declined to 93.7 index points in June, compared with 94 index points in May.

The BCI for June was also lower than the 94.9 index points registered in June 2017.

The average for the BCI in the first six months of this year was, however, 97.6 index points, compared with the average of 95 index points in the first half of 2017, and 93.7 index points in the second half of 2017.

Four of the thirteen subindices of the composite Sacci BCI positively affected the business climate on a month-on-month basis in June.

Two subindices were neutral, while seven subindices reflected negatively on the business environment.

The biggest negative month-on-month influences on the business climate, Sacci said on Tuesday, were the weaker trade-and-investment-weighted rand exchange rate, lower real retail sales, the decreased real value of building plans passed, and the higher, less stable, cost of energy supply.

Higher merchandise import and export volumes and increased new-vehicle sales, made positive month-on-month contributions to the business climate.

There are indications that although fiscal challenges remain, government debt is showing signs of being contained, albeit at a high level. Rating agencies suggest negative factors are mitigated by government’s debt structure and a sound banking sector.

Financial challenges at State institutions, however, remain substantial and government debt must be stabilised, Sacci stated.

It added that South Africa has, of late, experienced a sharp weakening in the balance of payments position.

This, it explained, has resulted in a larger deficit on the current account, as well as net selling of bonds and shares by nonresidents, which, in turn, led to additional volatility and weakening of the rand exchange rate.     

Further, the risk of a global trade war has alerted certain industries in South Africa, and they have already indicated it would affect industries and employment negatively, while knock-on effects have been cited by complementary industries and their export performances. 

“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,” Sacci said.

Sacci lamented South Africa’s disappointing economic growth of 0.8% year-on-year in the first quarter of this year, stating that it implies that the growth rate will have to accelerate to 1.7% year-on-year, for the rest of this year, to achieve a projected growth rate of 1.5%.

“It has become imperative that structural economic matters hampering inclusive economic growth should be addressed with economic rationality. Uncertainties surrounding economic policy directions and positions have to be clarified urgently so that investor and business confidence can regather itself,” Sacci said.