Image: iStock
Business confidence slipped again in the fourth quarter of the year due to sentiment among new car dealers declining by a huge 24 points, outweighing the 15 point increase in retail confidence. This shows the environment remained difficult as business conditions deteriorated, against expectations.
The RMB/BER Business Confidence Index (BCI) slipped by two points to 31 in the fourth quarter of 2023. This means that less than a third of respondents were satisfied with prevailing business conditions.
The BER conducted the survey between 25 October and 13 November. The survey covered 1 050 senior executives in the building, manufacturing, retail, wholesale, and motor trade sectors. Business confidence was largely unchanged in three of the sectors. Activity ticked down somewhat despite an ease in load shedding.
Sluggish demand means there is likely increased pressure on turnover and profitability, with purchasing prices reaccelerating but selling prices slowing for a fourth consecutive quarter, Isaah Mhlanga, chief economist and head of research at Rand Merchant Bank (RMB), says.
“While this is good news for the consumer as it may translate into lower consumer price inflation, this would weigh on the confidence of businesspeople as they struggle to pass on higher input costs.”
ALSO READ: Pressure shows as new vehicle sales slide in October
Business confidence among new vehicle dealers declined to just 6 index points, which is the lowest level since the second quarter of 2020, when South Africa was under the strictest phase of Covid-19 lockdown.
The sector is struggling in the face of very weak local demand, with consumer income under pressure amid high borrowing costs. Traders report on very high inventory levels.
Wholesale was the only other sector to report a decline in confidence, although it was a much smaller decline that stayed at a more elevated level, with confidence falling from 38 to 36 index points in the fourth quarter as sales volumes continued to move lower.
After a two-point decline in the third quarter, confidence among building contractors was unchanged at 41 in the fourth quarter. The activity indicator suggests that the growth momentum is still going, although it is somewhat slower compared to the last few quarters.
Mhlanga warns there is a risk that confidence in the residential sector could fade in coming quarters as high borrowing costs hurt demand in the residential property sector.
While business confidence in the manufacturing sector remained at a very subdued level compared to most other sectors, it increased to 26 index points, the highest level this year, with confidence averaging a mere 19 points during the first three quarters of the year.
This increase was supported by an improvement in domestic and particularly export demand, as well as higher production volumes amid less frequent and less intense load shedding. However, manufacturers remain pessimistic about business conditions going forward and scaled back investment outlays.
ALSO READ: Economic activity in South Africa at lowest level in a year – BETI
The most positive development was the 15 point surge in confidence among respondents in the retail sector. After two straight declines in the first and second quarter of the year, confidence recovered through the second half to end the year at 47 index points, equal to the average reading in 2022.
However, the underlying survey results warrant some caution as overall sales volumes slowed with non-durable retailers reporting the steepest decline. Some non-durable goods had steep price increases lately, which tends to depress volume growth.
Mhlanga says real gross domestic product (GDP) growth probably slowed in the third quarter and the survey results do not point to a meaningful reacceleration in momentum in the fourth quarter as activity remained subdued.
Beyond poor activity growth, the business environment remained tough and trading conditions did not improve as respondents had hoped for in the last quarter. Respondents lamented logistical challenges, ranging from delays at the harbours to dealing with potholes, while crime and corruption also remained top of mind.
Some respondents also remarked that they struggled to be paid in time for goods delivered, with knock-on implications for their production processes.
“Structural supply constraints around infrastructure and electricity remain a key challenge to operating in the South African business environment. However, the decline in the RMB/BER Business Confidence Index also reflects underlying demand weakness.
“The best example of this is the depressing outcomes for the interest rate sensitive new vehicle dealers, but local sales volumes remained sluggish across the board,” Mhlanga says.
ALSO READ: Latest manufacturing and mining figures show economic growth slowing down
“Without a sustained recovery in demand, it will be difficult for production growth to accelerate, which is needed to stimulate (non-energy) investment and employment growth, he warns.
Jee-A van der Linde, senior economist at Oxford Economics Africa, says household finances are constrained by high interest rates and elevated price inflation, with interest rate sensitive sectors especially impaired.
“The latest numbers confirm our view that domestic economic activity remained subdued in the fourth quarter of 2023. South Africa’s economy is limping from quarter to quarter while government scurries to plug the gaps. We believe that real GDP growth likely moderated to 0.1% in the third quarter from 0.6% in the second quarter.
“We forecast the economy will grow by 0.8% this year and by 1.0% in 2024. High fuel prices, together with energy supply constraints and logistic bottlenecks, will continue to undermine the economy’s performance over the near term.”
Van der Linde points out that a lack of infrastructure investment over the years limited economic growth potential, which means South Africa is unable to create enough jobs.
“Without a sustained recovery in demand and unless investment increases, the broad-based economic growth needed to boost employment and welfare is not expected to happen,” he warns.
Download our app and read this and other great stories on the move. Available for Android and iOS.
