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Business confidence has increased in the first quarter of 2022, from an unchanged 43 points in the fourth quarter to 46, almost at the neutral 50 mark of the second half of last year.
New vehicle dealers, wholesale and manufacturing all showed an improvement.
According to the RMB/BER Business Confidence Index (BCI), the 46 points is encouraging as it equals the BCI’s long-term average. It is also different from the low of 5 recorded at the height of the Covid-19 pandemic in 2020.
The survey was done between 9 and 28 February among 1,300 senior executives in the building, manufacturing, retail, wholesale and motor trade sectors, primarily with questionnaires submitted before Russia invaded Ukraine, the oil price surged past $120 per barrel and stage 4 load shedding returned.
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New vehicle dealers registered the biggest increase after declining from 47 to 41 in the fourth quarter of 2021. Sentiment recovered to 54 in the first quarter. Improved supply helped to increase sales, but dealers said they could not satisfy demand completely because stocks remained below satisfactory levels.
Confidence in the wholesale sector increased slightly to 57. Although sales of consumer goods were weaker, sales of non-consumer goods, such as machinery and chemicals, were boosted by favourable conditions in the agricultural and mining sectors.
Business confidence in the manufacturing sector also improved, with its points jumping from 38 to 43 thanks to strong domestic sales and exports. However, production could have increased even more, but were affecting by ongoing supply chain bottlenecks and shortages of key inputs.
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On the downside, business confidence among retailers declined from 52 to 49, while confidence for building contractors decreased to 25. Retailers of non-durable goods lost the most confidence as sales decreased due to rising food price inflation.
Higher-income earners also moved their spending to takeaways and dining out instead of food and groceries for at-home consumption and entertainment, which became a noticeable trend during the lockdown.
It also seems that sales of durable goods, such as hardware and building materials that were until now driven by work-from-home additions and renovations, have peaked, while sales of furniture, appliances and electronic equipment continued its strong performance and sales of semi-durable goods, such as clothing and footwear are making a comeback.
Business confidence among main building contractors decreased to 25 in the first quarter due to:
Sub-contractors, on the other hand, continued to benefit from factors such as refurbishing office buildings and/or converting them into multi-use precincts.
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Ettienne le Roux, chief economist at RMB, says the economy posted a reasonable rebound in the fourth quarter, growing by 1.2% compared to the previous quarter, indicating that it shrugged off the impact of the Numsa strike, load shedding in November and the presence of the Omicron variant.
Underlying demand conditions remained comparatively strong in the first quarter, especially in the case of new vehicle trade, some segments of retail and manufacturing. Le Roux says the improvement in sentiment points to economic recovery which was temporarily interrupted in the third quarter of last year, continuing into 2022.
“However, the stagflationary shock brought about by Russia’s invasion of Ukraine has now triggered a significant degree of uncertainty and downside risks around global and by implication South Africa’s gross domestic product (GDP) growth prospects. This is most unfortunate as it happens at a time when the economy seems to have been well on its way to a full recovery from the significant output losses incurred in 2020.”
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Economic research group Oxford Economics Africa said in response that although the BCI remains below the neutral 50 level, the index is moving in the right direction and has equalled its long-term average of 46 points.
“Following the latest GDP results, which showed that the South African economy recovered in the final quarter of 2021, the latest BCI results bode well for real GDP in the first quarter. However, it is likely that this optimism will be short-lived given the uncertainty about the conflict in Ukraine.”
Le Roux says renewed global disruptions and increased risk aversion may spoil the party for South Africa, where stagflation risks are becoming more pronounced.
“Soaring international oil prices will place upward pressure on domestic inflation, while the risk of a slowdown in global growth should lead to weaker external demand, potentially negating the impact of the favourable price shock for key export commodities.”
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