/ 13 January 2009

SACCI: Bleak road ahead for business

Business did not experience a good holiday period and retail sales are still down in the dumps, says South African Chamber of Commerce and Industry (SACCI) economist Richard Downing.

Downing was speaking on Tuesday during the release of the December Business Confidence Index (BCI), which showed that after ticking up by 2,5 points to 86,7 in November 2008, the BCI recorded its lowest level for 2008 of 83,8 in December 2008.

Downing explains that 2008 suffered under the whip of a normal cyclical downturn that any economy experiences, the power debacle and the subprime crisis.

He adds that no good news is expected on the housing front for a year, or year-and-a-half.

He explains that because there weren’t shorter downward cycles, the economy did not correct itself and has now had to take that correction in one grasp.

The BCI is made up of 13 sub-indices, which are put into a composite index that forms the BCI.

Downing says that while seven of these are positive, they are positive at very low levels and may turn negative or neutral.

“We are seeing a sideways movement as we go along,” he said.

Downing says a worrying factor is manufacturing and exports and imports, as the real effects of international economy come through strongly.

“Quite tough trade conditions are prevailing,” he notes.

Downing also sees a very tight road ahead on share prices, with the weak rand another negative factor to be weighed.

He says for 2009, South Africa will be doing well if it can achieve 1,5% GDP growth.

He warns that there is the possibility of negative growth in the first two quarters, which would indicate a technical recession, but that he prefers not to look purely at such technical indicators.

He highlights that some sectors in South Africa are already suffering recession.

Misplaced belief
Downing was also speaking on the release of SACCI’s Business Environment Review and Forecast 2008/09, which highlights that the belief that the world economy might be rescued in part by Brazil, Russia, India, China “appears misplaced” as all four countries have lowered their growth expectations from those made in 2008.

The report also pours cold water on expectations that economic growth as projected in the last Medium Term Budget Policy Statement of 3% can be achieved.

It says that a recent poll by the Economist Intelligence Unit gives a less optimistic figure of 2%. This is set against the World Bank’s baseline forecast for world growth in 2009 of 1%.

“The domestic economy is likely to feel the continued effects of depressed market conditions that have led to retrenchments,” says the report.

Notably, the report concludes that while some central bank forecasts see inflation below the 6% upper band range for the months ahead, it is not a view shared by the majority of respondents to a SACCI survey. — I-Net Bridge