Business confidence in holding position in July – SACCI

Business confidence was in a holding position in July, with the Business Confidence Index number indicating that the business climate is gradually returning to normal. The July number increased by 1.8 index points compared to June, 6.1 compared to the low level in May and 2.6 compared to July 2021.

The South African Chamber of Commerce and Industry (SACCI) Business Confidence Index (BCI) reference point or base year was adjusted to 2020 = 100 for a more recent reference point that includes up to date information and changing trends in the economy and financial markets. With the SACCI BCI at 2020 = 100, the July 2022 BCI recorded 110.3.

Increased merchandise export and import volumes and more new vehicles sold made positive contributions to the business climate in the short-term, but higher inflation and a weaker and volatile rand exchange rate, as well as higher real interest rates affected the business environment negatively.

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Positive developments underpinning business confidence

According to SACCI, the BCI for June and July indicates that the negative medium-term business sentiment of May 2022 was replaced by positive developments when compared to the same period last year.

“It was comforting to note that inward tourism recovered markedly while increased new vehicle sales, despite extremely high fuel prices, point towards medium-term investment. Real credit extension to the private sector was also more readily available notwithstanding higher debt servicing costs.”

The most negative year-on-year impacts were from the financial environment with rising inflation, increased real financing costs and a weaker and volatile rand. SACCI says the present business climate is notably affected by rising inflation worldwide and distortions of global supply chains and commodity markets.

The BCI for May was mainly disrupted by the floods in Kwa-Zulu Natal in April and its effect on merchandise import and export volumes through the Durban harbour. The terms of trade remained negative, while electricity supply had an adverse bearing on doing business. The decline in share prices on the JSE in July also maintained negative perceptions of South Africa.

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Uncertain outlook for global economy

“The uncertain outlook for the global economy remains uncertain after the partial recovery in 2021 as the Russian/Ukraine conflict caused further disruptions in food output and the price of crude oil. There is even talk of a renewed global recession. World growth prospects declined in the second quarter as growth in China and Russia slowed and US household expenditure was below forecasts,” SACCI says.

The world economy was already debilitated due to Covid and lockdown processes, while fiscal stimulation and an easy monetary stance, caused high worldwide inflationary expectations, notably in the US and major European economies.

In the latest World Economic Outlook, the International Monetary Fund (IMF) lowered its global growth forecast to 3.2% for 2022 and 2.9% for 2023, while growth for Sub-Saharan Africa is anticipated to be 3.8% for 2022 and 4% for 2023.

SACCI says although South Africa could experience growth of 2.3% in 2022 according to the IMF, structural impediments could see slow growth of 1.4% in 2023.

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Difficult for SA to accelerate growth to boost business confidence

The chamber also notes that South Africa is finding it difficult to accelerate economic growth to a level that addresses the excessive unemployment level to more acceptable levels.

“The level of fixed investment is not at the target level of 25% of gross domestic product (GDP) to support growth of at least 3% per year on a continued basis.”

Eskom´s electricity generation shortages in July 2022 was further exacerbated by industrial action that placed Eskom’s financial position in further difficulty. It is estimated that the recent load shedding caused significant costs to the economy with more than R4 billion lost from the GDP per day (not taking account of job losses) during stage 6, SACCI says.

The higher cost of international crude oil not only affected Eskom, but also added a substantial portion to producer (PPI) and consumer inflation (CPI), the chamber says.