Uncertainty over lockdown punches business confidence to 35-year lows
Though SA entered a marginally less restricted lockdown at the beginning of May, the effects on the economy are still expected to be deep
Business confidence fell to the lowest levels ever recorded during April as the cumulative effects of the coronavirus lockdown, ratings downgrades and an overstretched fiscus took hold in an economy already confronting recession.
The SA Chamber of Commerce and Industry Business Confidence Index (Sacci BCI) fell to 77.8 in April from 89.9- its lowest level since the index’s inception in 1985 and its second sharpest month-on-month decline on record, according to the chamber.
The figure underscores the need to balance health outcomes, with opening up the economy, economists told Business Day. But much of SA’s ability to recover will come down to the, as yet unknown, pace of the phased reopening.
Business confidence is seen as a necessary precursor to investment in the economy which is critical to boost growth and help create jobs. Even before the ravages of the lockdown that was implemented to slow the spread of the pandemic, SA’s business confidence levels were already fragile, languishing near record lows, while unemployment levels hovered near 30%.
Though SA entered a marginally less restricted level 4 lockdown at the beginning of May the affects on the economy are still expected to be deep.
Depending on the severity and the duration, economic growth is expected to contract anywhere between 5.6% and 16.1%, according to research the National Treasury presented to parliament last week. Under these scenarios jobs losses could be anywhere between 3 and 7-million.
Business for SA, a business group formed to support SA’s response to the pandemic, has called for a faster reopening of the economy. By its estimates GDP could contract between 10%-16.7% in 2020, despite the government’s R500bn stimulus package.
Sacci said on Thursday that SA’s challenges are compounded by four constraints that affect the economy — recessionary economic conditions; the Covid-19 lockdown; a compromised fiscal position, and the downgrading of SA’s sovereign credit rating to junk status.
Alongside the economic effects of the lockdown, SA’s economic performance and the downgrades by both Moody’s Investors Services and S&P Global led to “noticeable” net sales of bond and equities by non-resident investors. Non-residents sold R102.2bn in SA assets in the first quarter of the year vs the R140.8bn sold during the whole of 2019, Sacci noted.
“This outflow compounds the difficulty to restore investor confidence and fixed capital formation post-lockdown,” it said.
The collapse in confidence underscores the destruction of capital and savings that SA is seeing as businesses are forced to delve into their savings or take on more credit from banks to avoid closing completely, said Sacci economist Richard Downing.
SA had to look at the lockdown and “bring economic rationality into the equation” in trying to deal with the dual risks of health and economic affects, Downing said.
According to Sacci a number of factors stemming from the declaration of a national disaster and the lockdown are impairing the economy, the business climate and the tempo of the recovery. These include the timelines of phased reopening process; revenue losses to the fiscus; limitations to the sustainability of fiscal relief packages and state owned enterprises financial and operational difficulties.
Government's actions support the economy through its stimulus package, were significant as a share of GDP, considering the fiscal constraints it faced, said Sanlam Investments chief economist Arthur Kamp.
“The extent of our ability to recover is going to depend on how successful we are in flattening the curve and on allowing this economy to come back on stream,” he said.
But the pace and timing of the reopening “is an unanswerable question” said Kamp, and the uncertainty made it difficult for businesses to plan.