/ 5 July 2011

Confidence up, but economy ‘not firing on all cylinders’

Confidence in the South African economy rose slightly in June 2011 in spite of shaky spending in the public and private sector, according to the monthly business confidence index (BCI) provided by the South African Chamber of Commerce on Tuesday.

The BCI improved to 86.8 last month, one point higher than May, indicating a possible upward trajectory in confidence figures after the index measured 87.4 in January.

SACCI also indicated business confidence for the first half of 2011 would be significantly higher than for the first half of 2010, rising to a 86.9 average from 82.8. It warned however that the year-on-year increase should be viewed within the low base of BCI last year due to the continued recovery from the recession in 2008.

The body also believes the current figures should be viewed within a climate of increased spending by consumers.

“The driving force behind the current performance is fragile as the basis for current high household spending levels is difficult to reconcile with employment levels and low credit extension,” SACCI said.

Rand Merchant Bank’s Graeme Körner agreed with SACCI in that the increase in confidence in the economy was positive, but should be viewed within context.

“You have to respect what the index is telling you in terms of confidence improving but you have to realise the economy is not firing on all cylinders,” Körner told the Mail & Guardian.

“All disposable income is under pressure and people are just not taking on debt they are unable to service.”