Business confidence in South Africa edged lower in the fourth quarter of 2006 but manufacturers and retailers remained upbeat despite higher interest rates.
Africa’s biggest economy has grown strongly and the confidence data pointed to the third quarter’s 4,7% expansion in gross domestic product being sustained in the current quarter, a poll showed on Wednesday.
An index compiled by Rand Merchant Bank and the Bureau for Economic Research (BER) fell by two points to 83, indicating that more than eight out of 10 participants see business conditions as ”satisfactory”.
”Despite three interest rate hikes since June, business confidence remained remarkably strong in the fourth quarter,” RMB said in a statement.
A weaker rand had helped local manufacturers regain market share from importers and benefit from buoyant domestic demand, it said.
The rand has weakened by about 11% against the dollar since January and by nearly 20% against the euro, although it has pulled back sharply from lows reached in early October.
Statistics South Africa on Tuesday revised up growth rates for previous periods, saying the economy grew by 5,1% in 2005, a two-decade high.
RMB said retailers, manufacturers and the construction industry were most optimistic about the fourth quarter, with their confidence jumping to 91, 75, and 90 respectively.
”Going from the responses from CEOs and business executives in the wholesale, retail and building sectors, domestic demand appears to have held firm,” it said.
RMB economist Rudolf Gouws said improving confidence in the manufacturing sector, which accounts for 17% of South Africa’s GDP, bodes well for overall economic growth.
South Africa’s robust consumer spending has been one of the main drivers of growth, but is now adding to inflationary pressures. The central bank, which has already raised its repo rate by 150 basis points to 8,5% since June, is widely expected to hike by another half percentage point next week.
The survey showed confidence among new vehicle dealers slid in the fourth quarter to 71 points from 94, pointing to concerns about future rate hikes after record sales over the past year.
”Given the extent of the decline, however, it may also be that after three years of historically unprecedented growth, some dealers have over-reacted to the recent slowdown in sales,” Gouws said, adding the remarkable resilience of overall business confidence pointed to strong underlying growth.
The RMB/BER confidence index is an average of building contractor, manufacturer, retailer, wholesaler and new vehicle confidence measures. Together the sectors make up 45% of total economic activity. – Reuters