South African business retained its confidence, but that buoyancy may be tempered in the months ahead by high oil prices and runaway consumer spending.
On Thursday, the South African Chamber of Business (Sacob) released its Business Confidence Index for February at 126,9, which is higher than January’s 125,8 and the closest to last September’s record level of 130,9.
But the index was recorded ahead of last week’s Budget and does not include this week’s spike in the oil price and continued consumer spending.
The price of Brent Crude Oil touched $50 a barrel for the first time since October last year. If the price of oil remains at these levels, it is likely to transmit inflationary pressures to the local economy and reduce prospects of a rate cut. This week, the price of petrol rose by 42c a litre, with talk of an additional 30c hike over the next three months.
Last October, the national treasury estimated that a $55 per barrel oil price would add 0,5 % to inflation. Janet Henry, of HSBC in London, made similar estimates for world inflation and growth. The latest spike is attributed to increased demand because of the northern hemisphere winter. But oil was not alone in threatening the inflation outlook.
On Wednesday, Statistics South Africa (Stats SA) reported that retail sales for December grew by 12,3%, over those of the previous December, to a staggering R30-billion. Retail sales for the year grew 10,3%, compared to 4,9% in 2003. Stats SA also reported that wholesale sales — stock in warehouses, but not on shelves — grew by a record 25,2% in December.
Strong consumer demand helped local manufacturing recover. The Investec/Bureau for Economic Research Purchasing Manufacturing Index stood at 54,2 in February, up from 49,3 in January. The index broke through the key technical level of 50.
But the consumer boom also caused credit acceleration. On Monday, the Reserve Bank reported that money supply grew by 11,9%. More importantly, though, credit demand, as shown by installment sales, mortgages and leasing finance, grew by 23,6%.