South African business confidence fell to a three-and-a-half-year low in the third quarter as vehicle dealers and manufacturers became less optimistic about their prospects.
The First National Bank/Bureau for Economic Research (FNB/BER) business confidence index fell by eight points to 72 compared with the previous quarter, with all the sub-components of the index declining.
But confidence was still relatively high, above the 50 mark that signals a net positive outlook.
The largest falls were seen among car dealers and manufacturers, knocked by falling vehicle sales and the effects of higher interest rates.
New-vehicle-dealer confidence fell to 37 in the third quarter from 50 in the second quarter, and 99 points in the beginning of 2006.
“The fall in confidence can be ascribed to various factors, among them the impact on sales of rising interest rates, the new Credit Act and few people wishing to replace vehicles,” said FNB and the BER in a combined statement.
The South African Reserve Bank has raised interest rates by 300 basis points since June last year to tackle rising inflation and robust consumer spending. The new Credit Act came into force in June, aimed at clamping down on reckless credit providers.
The statement said manufacturer confidence fell to 65 from 78, the largest single decline since 2000, when the sector was in recession, also partly due to capacity constraints.
“It may be that sales growth is coming under pressure not from a collapse in demand, but because capacity utilisation is stretched,” it said. “This is at a time when intense import competition is deterring manufacturers from fully passing on higher labour and raw material costs.”
Other sectors remained relatively upbeat, despite declining confidence.
Retailer confidence fell to 84 from 91, while confidence among wholesalers stood at 91, from 93 in the previous quarter.
The BER said strong growth in non-durable goods sales, due to rising employment and wages, offset the effects of higher interest rates and tighter credit controls.
Building contractors also curbed their optimism, their confidence falling to 83 from 88 due to higher building costs and the effect of higher rates on residential building activity.
The FNB/BER statement said confidence levels will likely fall further in the next few months, but are unlikely to reach levels below 50 that were seen during the previous downturn in 2000/01.
“Despite a probable further slowdown in the United States economy, the year ahead still looks good for above average global growth,” the statement said.