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Business confidence at lowest level in a year

Business confidence dropped to its lowest level in a year in the third quarter of 2011, according to an index by Rand Merchant Bank (RMB) and the Bureau for Economic Research (BER) released on Tuesday.

“Although business confidence is currently at its lowest level in over a year, the number is almost double that registered at the worst point of the recession in 2009,” RMB/BER said in a statement.

The index declined seven points to 48 in the second quarter, and a further nine points to 39 in the third quarter of 2011.

“A reading of 39 indicates that six out of 10 respondents are unsatisfied with prevailing business conditions,” RMB/BER said.

During the third quarter, business confidence declined in the new vehicle trade, manufacturing and wholesale trade sectors.

It remained around the same levels in the building and retail trade sectors.

RMB/BER said two consecutive quarter declines did not mean an end to the business cycle upswing as confidence did not usually increase in a smooth fashion during an economic upturn.

“For instance, over the course of the 1999 to 2007 upswing, there were instances in 2000 and in 2002/03 where sentiment deteriorated for several quarters only to subsequently improve again.”

However, the drop in confidence and weaker underlying developments in all the sectors, except for retail trade, suggested the upturn had lost some steam.

The annualised economic growth of only 1.3% in the second quarter, slowing from 4.5% the previous quarter, would probably remain weak in the third quarter.

South Africa’s business cycle upswing had mainly been driven by favourable terms of trade and strong real wage gains, RMB/BER said.

Weakening growth in world trade meant it was not certain whether export commodity prices would continue to rise.

“Also, business confidence survey results have for some time now indicated that strong wage inflation, among other sharp cost increases, are starting to take their toll on employment creation,” RMB/BER said.

“The upswing will remain fragile until the factors that normally drive durable expansions, such as rising fixed investment, job growth and increased credit spending, kick in.” — Sapa

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