South Africa’s business confidence index (BCI) jumped to its highest level in two years in August but is likely to moderate as the impact of strikes and other factors undermine the economic outlook.
The BCI rose to 87,6 points in August from 84,3 in July, its highest reading since September 2008, when the global financial crisis was at its peak, data from the South African Chamber of Commerce and Industry (Sacci) showed on Tuesday.
Sacci attributed the spike to “unusual positive developments on the trade account and net financial inflows from the rest of the world” and warned of a correction.
The success of the Soccer World Cup hosted by South Africa in June/July left an encouraging legacy, but a business-friendly environment, stronger domestic demand and a stronger position in global trade were “imperatives in maintaining the current momentum in business confidence”.
It warned that a three-week strike by public-sector workers demanding higher wages that was suspended on Monday would put pressure on state finances.
Union officials are giving themselves 21 days to finalise an agreement with their members that could end the wage conflict that saw 1,3-million workers walk off their jobs, hitting schools and state hospitals across Africa’s biggest economy.
“The outcome of the public servants’ strike will have serious consequences for already tight fiscal circumstances as well as unintended consequences for employment prospects,” Sacci said.
The business body said it believed there was a case for lowering the interest rate after the South African Reserve Bank’s policy meeting this week to help stimulate economic activity.
Nineteen of 23 economists polled by Reuters last Friday expected the central bank to cut the repo rate on September 9 as growth stutters after last year’s recession, which led to nearly a million jobs being lost.
The Reserve Bank has left rates unchanged at the last two policy meetings, following 550 basis points of cuts from December 2008 to March 2010 that brought the repo rate down to 6,5%, its lowest level in three decades. — Reuters