/ 8 March 2011

Business positive for first time in three years

Business confidence in the first quarter of 2011 was positive for the first time in three years, according to an index by Rand Merchant Bank (RMB) and the Bureau for Economic Research (BER) released on Tuesday.

“The RMB/BER Business Confidence Index (BCI) jumped from 44 points in the fourth quarter of 2010 to 55 in the first quarter of 2011,” RMB/BER said in a statement.

“This is a good sign since improved levels of business confidence typically lead capital expenditure …,” said Ettienne Le Roux, chief economist at RMB.

This was encouraging as “persistent bottlenecks, particularly at provincial and municipal level, continue to constrain fixed investment by the public sector”, he said.

The sharp increase in the index signals that strong gross domestic product growth was probably sustained during the beginning months of 2011, RMB/BER said.

The index reflects the percentage of respondents in various sectors who rate prevailing business conditions as satisfactory.

The index can vary between zero (when all respondents rated conditions as unsatisfactory) and 100 (when everybody rated it satisfactory).

When the index is positive, or above 50, it means more respondents were optimistic than pessimistic about prevailing business conditions.

“The last time this was the case was three years ago,” said RMB/BER.

Business confidence increased in three of the five sectors making up the index — the motor trade, wholesale trade and manufacturing sectors.

It was down in the retail and building sectors.

Business confidence in the motor trade was at its highest level in five years — at 84 points.

This was despite stock shortages and fears of lower sales due to the carbon emission tax introduced in September 2010, which had depressed confidence in the previous quarter.

Wholesale confidence had also improved significantly to 65 after hovering around the neutral 50 level in 2010.

Confidence in manufacturing caught up towards the end of 2010 and had increased by 10 index points to 51 from the previous quarter to the latest quarter.

The building sector showed no sign of recovery, with the index dropping to 18, from 20 in the previous quarter.

This was its lowest level in more than a decade.

“While sentiment is currently depressed, it is worth mentioning that viewed from a long-term perspective, business confidence has been lower during previous down-cycles (1985/1986, 1992/1993 and 1998/1999).

“Moreover, building cycles are long term in nature and typically lag those of other sectors in the economy,” RMB/BER said. — Sapa