Business confidence plunges further

Having fallen by a massive 22 index points over the first half of 2008, the RMB/BER business confidence index declined by a further 11 points during the third quarter.

The third quarter reading of 34 meant that only a third of respondents were satisfied with prevailing business conditions, compared to four-fifths a year ago, economists at Rand Merchant Bank said on Wednesday.

The third quarter survey was conducted between August 4 and September 2.

Whereas business confidence had declined in only two of the five sectors covered during the second quarter survey, it declined in all five sectors during the third quarter.

The largest fall occurred in new vehicle trade, where confidence fell by 23 index points. Confidence now stood at 15 — a nine year low — compared with 38 the quarter before.

”An historically high household debt service burden, a tightening of credit standards following the introduction of the new National Credit Act a year ago, the inability to continue payments on the part of a growing number of car owners, and the falling trade-in values of cars, reduced new vehicle sales sharply,” Rand Merchant Bank said.

The second biggest fall occurred in the wholesale sector. Wholesalers’ confidence dropped by 18 index points, from 51 during the second quarter.

”Weaker private fixed investment and building activity, as well as falling orders received from retailers [who are themselves battling to bring their unplanned high stock levels down], hit wholesalers hard,” the survey

The confidence of building contractors dropped further, as demand again weakened by more than previously expected.

Confidence fell by six index points — from 47 to 41. This was the lowest level since the fourth quarter of 2001. According to the survey, manufacturers’ confidence fell further from 37 to 30, the lowest level since the third quarter of 1999 when the 1997/1999 business cycle downswing ended.

”Weaker domestic orders, rising stocks of finished goods and pressure on profit margins persuaded seven out of 10 manufacturers surveyed to rate prevailing business conditions as unsatisfactory.”

Retailers’ confidence declined by four index points during the third quarter — from 53 to 49, the survey showed.

”As is to be expected, the sales of the interest rate sensitive categories [such as clothing, furniture, appliances and electronic equipment] deteriorated further, but the sales of basic necessities [such as food] held up well.”

The persistent decline in business confidence was another indication that the second quarter rebound in GDP growth was a mere technical recovery following the impact electricity outages had on the mining and manufacturing sector during the first quarter, Rand Merchant Bank said.

The large third quarter drop in confidence indicated that the underlying economic slowdown had become even more marked.

However, as interest rates had probably already peaked, and were likely to start declining in the first half of next year, and as the oil price had fallen by nearly one third, an outright contraction in economic activity was unlikely. – Sapa

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