Two Indicators Show Fading Business Confidence

More disturbing data out today with the RMB/BER Business Confidence Index (BCI), which dropped by four points to 48 in the second quarter. The index is now under 50, which means it is in negative territory, with pessimists exceeding the optimists. Meanwhile SACCI’s BCI for May was also released, and is also heading downwards. It came in at 90.4, which is 1.9 index points lower than in April 2013.

Expert views:

Ettienne le Roux at Rand Merchant Bank:

In the context of continued labour unrest, warnings of power outages and the sharp fall in the value of the rand, one could easily have expected a decline bigger than the actual four index points in the RMB/BER BCI. The fact that it did not materialise points to underlying business conditions which, although relatively poor, have not collapsed. Indeed, the performance of the economy can be described as one of weakness, mixed together with some pockets of resilience. Although less vibrant than last year, retail, wholesale and new car sales volumes continue to expand, while manufacturing keeps wobbling along. On a brighter side, the recovery in building activity appears to be gaining some strength. For South Africa to break loose from this low and unsatisfactory growth path, the global economy needs to recover more forcefully and the local constraints holding the economy back must be tackled with greater vigour. Addressing infrastructure bottlenecks, skills shortages, high (and rising) administered price inflation, as well as persistent strong growth in unit labour costs, will have a notable impact on raising the country’s competitiveness and, ultimately its growth potential.

SACCI on the SACCI BCI:

The negative impact on the business climate came mainly from causes exogenous to private business activity but which play a cardinal role in affecting business confidence, economic performance and financial markets. Socio-political events, including on-going militant labour action, are having a harmful impact on the business mood and commercial and industrial activity levels while also distorting financial market performance. For SACCI it is disconcerting that major economic sectors that have the ability to create employment growth, are contracting while others are experiencing exceptional cost pressures resulting from rising labour costs and intermediary inputs like fuel, electricity and water prices that are increasing faster than the general price level as measured by the CPI (5.9%) and the PPI (5.4%). The decline in the SACCI BCI in May 2013 shows that non-economic factors can have a damaging impact on the economy and on the business climate. Ill-disciplined and lawless conduct by economic role players leads to undesirable effects on growth, the rand and unemployment, which could have been avoided. If business confidence is to rise above its current levels of vulnerability, it is essential that economic role players urgently rally around a common vision of sound business values and economic progress.

Mike Schussler from economists.co.za:

Disappointing to say the least, but with all the bad news around it is not surprising. I expect better growth in the 2nd quarter, however, as the 1st quarter was down – on the technicality of seasonal adjustment gone wrong.

Conclusion

Not very cheery news in these two releases on business sentiment. And with mining and industrial unrest on the rise it may get worse before it gets better.

Tweet of the Day

@Genius_Holmes: The past, present and future walk into a bar. It was tense


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