Business confidence has fallen to its lowest level in 2018 as a weaker rand and talk over land expropriation without compensation weigh on investors.
The business confidence index compiled by RMB/BER declined for the second quarter in a row to 38, down from 45 in the first quarter when Cyril Ramaphosa became president. A score below 50 indicates dampened confidence.
Low confidence constrains spending and investment, which results in shortfalls in government revenues and can lead to tax hikes and, subsequently, a negative cycle of low confidence and low spending, said NKC analyst Gerrit van Rooyen.
The relationship between the index and GDP movements is historically tight, so the renewed downward trend in confidence is disconcerting, said RMB chief economist Ettienne Le Roux.
Finance minister Nhlanhla Nene warned on Monday that weak business confidence would “hinder a robust recovery in growth”. Data last week showed SA is in recession for the first time since 2009.
Signs of strain
“The underlying SA business landscape continues to weaken, with more sectors showing signs of strain.
“While confidence hasn’t [yet] fallen to the levels observed during the previous [and severe] recession of 2009, we remain deeply concerned about the prospects” said Le Roux.
Annabel Bishop, chief economist at Investec, said the weaker rand has also been a cause for concern. The currency has weakened steadily from R11.51 against the dollar in February, to R15.70/$ last week.
“Many worry about the impact of higher inflation on their businesses when consumers are already battling with higher living costs, making it difficult for businesses to pass on costs,” she said.
While the manufacturing sector kicked off the third quarter with strong growth, the Absa purchasing managers’ index, which measures activity in the sector, indicated that this would be short-lived after it fell to the lowest level in just over a year.
Production in the sector increased 2.9% in July from a year ago, after a 0.7% in June. This was more than double the Bloomberg consensus of 1.1%.