Picture: ISTOCK
Picture: ISTOCK

The recent rally in the rand has not been enough to stem a slide in business confidence, which again fell in June, stoking fears that the South African economy continued to underperform in the second quarter.

The rand has gained 2.59% on the dollar in July but is still down more than 8% in 2018. It lost 16% in the second quarter to end-June, after gaining 4.5% in the first. The South African Chamber of Commerce and Industry (Sacci) business confidence index (BCI) released on Tuesday slipped slightly from 94.0 in May to 93.7 June — the worst reading in eight months.

The BCI has declined each month from a high of 99.7 index points in January 2018. It dropped by a further two index points between April and May to 94 index points, mainly because of lower merchandise import and export volumes.

"Today’s [BCI] figures have only strengthened our view that the optimism that surrounded the February inauguration of President Cyril Ramaphosa has not translated into a real or sustained boost for SA’s long-struggling economy," said Capital Economics senior emerging markets economist John Ashbourne.

The Sacci index is a measure of business activity rather than a sentiment survey in that it is compiled from a variety of activity indicators, including energy production, trade figures and financial market performance.

The June BCI figure adds to a recent spate of lacklustre economic data which suggests the economy has continued to perform poorly and may even have contracted further.

"The weakening rand, high oil prices and the increase in the VAT rate have put pressure on consumers, while continuing uncertainty over the mining policy environment and the expropriation without compensation debate has hurt investor confidence and therefore capital formation," explained Nedbank in a recent note on the economy.

In addition, the global economic environment had also become less certain as trade war talk had intensified and portfolio investors had become increasingly risk-averse, it said.

The 2.2% quarterly contraction in SA’s real GDP growth in the first quarter was the largest quarterly decline since the global financial crisis.

It shocked economists, most of whom had expected that first-quarter growth would slow by only 0.5%.

Economists will have a clearer idea of SA’s second-quarter growth performance when May’s mining and manufacturing output figures are released later this week.

However, the decline in the manufacturing PMI from 50.9 index points in April to 49.8 in May, coupled with unexpected load-shedding by Eskom, suggests that the production side of the economy remained in the doldrums.

Capital Economics recently cut its 2018 GDP growth forecast from 2.0% to a below-consensus 1.3% on the expectation that the economy performed poorly in the second quarter. Last week Nedbank cut its whole-year forecast to 1.5% from 1.8% for the same reason.