South Africa’s business confidence index (BCI) rose to 83,1 points in June, helped by economic data and financial market movements suggesting stabilisation, although recovery was tentative, a survey showed on Monday.
Business confidence has taken a knock over the past year as depressed local and global demand for South African products slashes output in the key mining and manufacturing sectors.
The BCI, however, increased from 81,8 in May, lifting the average for the second quarter of 2009 to 82,3 compared with 81,9 in the first quarter, the South African Chamber of Commerce and Industry (SACCI) said.
”Although still broadly depressed, a number of economic indicators suggest that the decline of the economy has bottomed out and that some economic activities may even have turned,” SACCI said in a statement. However, demand for local goods and services remained strained.
South Africa fell into recession — the first since 1992 — in the first quarter of this year when GDP shrank by 6,4% after a 1,8% contraction in the last three months of 2008.
Inflation, policy risks
The central bank has reduced interest rates by a total of 450 basis points since December to ease pressure on the economy, almost totally unwinding 500 basis points of increases during the two years to June 2008, when it was grappling with inflation.
However, the bank left its key repo rate unchanged at 7,5% at last month’s policy meeting, as consumer inflation stubbornly remained above a 3% to 6% target band, at 8%.
SACCI said a recently approved 31,3% price increase for electricity would contribute to higher inflationary expectations and risks.
The business body urged caution and restraint in economic policies as South Africa struggles to pull itself out of recession.
The ANC government under new President Jacob Zuma has been at pains to reassure investors it will continue to pursue the business-friendly policies of his predecessor, but is under pressure from its labour union and communist allies to adopt a more populist stance.
”The fragility that underpins the promise of stability makes it vulnerable to suffocation if not supported by the appropriate economic policies,” SACCI said. — Reuters