The South African Chamber of Commerce and Industry’s Business Confidence Index drops to its lowest level this year, reiterating earlier data.
BUSINESS confidence dipped for the second month in a row, signalling a possible downward trend in sentiment, the South African Chamber of Commerce (Sacci) said yesterday.
Trade flows were the main culprit but the poor performance of retail sales was another factor behind the fall of Sacci’s business confidence index, which dropped to 85,8 last month from 86,9 in April.
The monthly index was significant as it followed hard on the heels of another survey earlier this week showing business confidence dived in the second quarter.
That fall was led by a sharp deterioration in mood among retailers, suggesting consumer demand is on the back foot.
"I think put together the surveys tell you there are rising concerns around both global growth and the consumer spending environment at home," Sean McCalgan, market analyst at Econometrix Treasury Management, said yesterday. "They tell us the scope for interest rate hikes this year is declining — the Reserve Bank won’t want to tighten policy when you have growth slowing both domestically and offshore."
Local markets are betting the Bank will raise its key repo rate from 5,5% to 6% in November to tame rising inflation.
Most economists expect a rate hike this year but some say the Bank will hold fire until next year, given the patchy nature of the recovery.
Economic growth accelerated to 4,8% in the first quarter, from 4,5% in the previous quarter.
However, so far growth has been driven by consumer spending, the economy’s main engine.
Investment by the private sector has been sluggish, so a slowdown in consumer demand would be particularly worrying. Sacci’s business confidence index has receded from a March peak of 88,3.
"The previously anticipated upward momentum has failed to gain a foothold and now the business confidence index faces the prospect of a downward trend," Sacci said.
A breakdown of the index shows that export volumes weighed the most heavily last month, followed by imports, new vehicle sales and retail sales. The exchange rate of the rand, share prices and inflation also had negative effects.
Manufacturing made a positive contribution to the index, in step with the quarterly business confidence survey from the Bureau for Economic Research and .
Sacci said there were two significant events taking place last month — the approval of Walmart’s takeover of local retailer and the outcome of the local government elections.
"Both of these will have significant consequences for the perceived ease of doing business and business confidence levels in SA," Sacci said.