Business confidence crashes to record low

Business confidence plummeted to its lowest level yet during the second quarter as SA’s already-weak economy grappled with the unprecedented shock of the coronavirus pandemic.

The latest RMB/BER business confidence index (BCI) released on Wednesday slumped to a mere five index points, the lowest since the survey began in 1975. This was down from the first quarter’s already weak level of 18 index points.

The BCI gives one of the first concrete glimpses into sentiment in the country’s economy during the phased lockdown, which began with the harshest restrictions at level 5 from March 27 and has since eased to level 3 at the start of June.

“Covid-19 has drastically changed the already-weak economic landscape and perhaps in some cases permanently. We are likely only beginning to fully appreciate the complexity of the economic impacts of this pandemic,” said RMB chief economist Ettienne le Roux.

The BCI surveys 1,800 respondents across five sectors — manufacturers, building contractors, retailers, wholesalers and new vehicles dealers. The index’s neutral mark is 50, with a reading below that deemed to be negative.

Until now, the lowest BCI on record was 12 index points registered during the third quarter of 1985 and the fourth quarter of 1977, the bank said. In both cases, the lows were due to political developments in SA.

Retail confidence

Though confidence may have bottomed out in the second quarter Le Roux, cautioned that a “significant bounceback” in economic activity was unlikely.

All five subcomponents of the index declined, with retail confidence the only sector that did not fall below 10 index points.

Business confidence is an important precursor for fixed investment in the economy that is needed to boost growth and create jobs.

President Cyril Ramaphosa’s administration set out to attract $100bn worth of investment into SA over five years, efforts that now face off with the economic shock caused by the lockdown restrictions implemented to slow the pandemic.

In their responses, building and civil construction contractors said that many clients cancelled future projects, while manufacturers aggressively cut back on fixed investment.

“The private sector is very worried about the future and that is very clear from the survey responses,” said Le Roux

The BCI was likely to remain low over the short to medium term, said Absa senior economists Peter Worthington and Miyelani Maluleke in a note.

Limit recovery

With the economy likely to shrink almost 10% on their estimate businesses were likely to face weak trading conditions for some time, they said.

Private-sector fixed investment growth, which correlates with the BCI, is likely to fall further and limit any recovery in the economy, if “substantial policy changes” are not implemented they noted.

“It remains to be seen if the government can expedite the delivery of policy certainty and make the state more effective to improve the operating environment for SA businesses,” they said.

The BCI comes as global organisations such as the World Bank and OECD slashed their expectations for global and local growth. The OECD expects SA’s economy to shrink as much as 8.2% in 2020 if further outbreaks of the pandemic occur later this year.

“While it’s a shocking number it’s not surprising,” said Christie Viljoen, economist at PwC.

With confidence at such dismal lows it would likely weigh on private sector investment, he said, as firms prioritise keeping their operations going and staff paid.

The second quarter survey was conducted between May 13 and June 1, with the fieldwork covering the period during risk level 4 and the announcement of the switch to level 3 on June 1.

donnellyl@businesslive.co.za