An increase in the business confidence index (BCI) for October was probably a temporary spike and not the start of a renewed surge in confidence, the South African Chamber of Business (Sacob) said on Monday.
The increase to 99,5 in October came after a declining trend between May and September.
”Although the increase of 1,8 index points between September and October may have been substantial, it is probably a temporary spike and does not imply the start of a renewed surge in business confidence,” Sacob said in a statement.
Three major occurrences in October had retarded the slight downward trend of the BCI since May.
The trade account of the balance of payments had made a significant turnaround and consumer inflation had declined slightly, contrary to expectations.
Positive assessments of the economy by financial markets had also outweighed the moderation in the real economy.
”In October 2006, Sacob’s BCI spiked because of distinctive positive developments that inspired the business mood, and especially the markets. The underlying trend in business confidence, however, seems to indicate moderation on positive business prospects.”
Sacob noted that despite a rise of 2,6 percentage points in the real cost of financing since August 2005, borrowing by the private sector had continued to increase at a substantial rate.
”This year’s interest rate increases thus far did not influence borrowers’ behaviour as might have been anticipated — in fact borrowing accelerated further and trade conditions and business confidence continued to benefit.”
Although the weaker rand had nullified the meaningful decline in the crude oil price, the inflationary impact of higher oil prices remained, albeit more subdued.
Sacob said the weaker rand should benefit South Africa’s competitiveness and help partly correct the current account deficit.
However the weaker rand would be negative to inflation in the medium term given the import propensity for capital and investment goods and the infrastructure development that lay ahead. – Sapa