The business confidence index (BCI), after dipping to 96,9 in October, dropped further to 95,8 in November, the South African Chamber of Commerce and Industry said on Wednesday.
”The November 2007 BCI is the lowest level of the BCI since February 2004 and yet another new low for 2007. A previous lower level for November of 94,2 was recorded in 2003,” the chamber said.
Apart from this month’s sub-indices on international merchandise trade activity, the other real economic sub-indices of the BCI suggest that real economic activity continued to slow down.
As in October, five of the 13 sub-indices of the BCI turned positive in November, while eight sub-indices, as also was the case in October, had a negative impact.
The chamber said economic growth in prominent sectors that had been pushing growth for the past nine to 12 months slowed by 0,5 to two percentage points year-on-year. The October 2007 inflation data also indicated that inflation was accelerating and while producer inflation slowed down somewhat, it was still 1,5 percentage points higher than consumer inflation.
”This could lead to greater price instability if not managed prudently by business, policy makers and other role players,” the chamber said.
However, of more concern is that apart from local pressures, such as food security, the dollar prices of crude oil, food and non-food agricultural products carry on soaring by rates that would accelerate local inflation, the chamber said.
”The increases in money supply and borrowing also still imply ample room for real credit extension and the accommodation of faster rising prices.”
The chamber said it is concerned that higher real financing costs would be particularly detrimental to small and medium-sized business — especially in a slowing economy.
However, the higher real interest rates provide an incentive for attracting capital to South Africa that would support the rand and finance the huge current-account deficit.
”It must, however, be noted that net purchasing of shares and bonds by non-residents has been erratic over the last few months and that net bond purchases by non-residents increased as bonds were in greater demand,” the chamber said.
Among the emerging-market economies, South Africa’s most vulnerable comparative position is regarding its current-account deficit, which was the second-highest deficit to GDP among the 25 economies, the chamber said.
”This is the area where global adjustments of financial flows in an uncertain global financial environment could have negative consequences for the South African economy.”
However, the chamber believes that South African business has shown resilience in the past ”and when sound and consistent economic policy decisions lead the way, business confidence will follow”. — Sapa