Business confidence for other services dives in fourth quarter

Business confidence for other services decreased by 6 points to 42 in the fourth quarter which implies that almost six out of 10 respondents are dissatisfied with prevailing business conditions. This decline in confidence comes after a slight increase in confidence in the third quarter.

Hotels, restaurants, transport, real estate and business services make up the other services sector and fall under “other” services to distinguish them from the retail, wholesale and motor trade sectors which are also part of the services sector but included in the RMB/BER business confidence index (BCI).

The other services sector is not included in the BCI due to its lagging business cycle characteristics. Although the other services sector contributes a considerable 22% (2019) to gross domestic product (GDP) and employment, the Bureau for Economic Research (BER) does not include it in the BCI to safeguard its advanced signalling properties.

The BER says overall average confidence in the other services sector was much lower than in 2022. “The decline in confidence in the fourth quarter was despite respondents recording an improvement in business conditions and higher business volumes, which were both above their long-term averages.”

Katrien Smuts, economist at the BER, says all the underlying activity and demand indicators (including expectations for the first quarter of 2024) deteriorated in the business services subsector, with confidence declining by 17 points to 42 after it remained level at 59 between the second and third quarters.

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Only hotels and restaurants more confident

The only subsector where confidence increased compared to the third quarter was hotels and restaurants, where confidence rose by 7 points to 74 in the fourth quarter, supported by an uptick in business conditions, greater business volumes and higher selling prices.

“Confidence in this sector also steadily increased from a record low of zero, measured at the height of the lockdown in 2020, to what is now at an above-average confidence level,” Smuts says.

In the transport subsector confidence edged down by one point to 45 but remains close to its long-term average of 47. While an improvement in business conditions and business volumes, as well as higher selling prices, bolstered the relative strength in this sector, sentiment was still dragged down by non-activity factors such as crime.

Confidence among estate agents declined steadily since reaching a peak of 56 in mid-2022, to just 8 in the fourth quarter of 2023, the lowest since the second quarter of 2020. Smuts says business conditions are worse, while business volumes rose by one percentage point this quarter, although they remain weak.

“The likeliest explanation for the bleak picture in this subsector is elevated borrowing costs due to high interest rates.”

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Results in line with business confidence index

Smuts says except for the hospitality industry, results in the other services survey are in line with the slight decline in the RMB/BER business confidence index and another good barometer for overall subdued sentiment in the South African economy.

“While the fourth quarter saw a six-point decline in confidence, the sharpest drop was between the fourth quarter of 2022 and the first quarter of 2023, which means the 2023 average confidence level is now almost 10 points below the 2022 average level and consistently below the long-term average.”

Business volumes remained strong in the fourth quarter, lifting by 11 percentage points to 3, the first positive reading this year. In fact, Smuts says, business volumes remained resilient, above long-term average levels.

“There were some very specific factors boosting business volumes in the hospitality and transport subsectors, but this was not enough to pull through to higher confidence across the different sectors. The general feeling that nothing fundamental has changed in the economy continues to restrain sentiment.”

However, on a positive note, a sustained moderation in consumer inflation and a modest cutting cycle expected to start in mid-2024 may boost the local consumer and aid, among others, the suffering real estate sector, she says.