Business confidence sags in the fourth quarter

Business confidence remained in the doldrums in the fourth quarter despite improved electricity supply, a survey conducted by Rand Merchant Bank (RMB) and the Bureau for Economic Research (BER) showed on Tuesday.

The survey measures sentiment from businesspeople in the building, manufacturing, retail, wholesale, and vehicle dealerships. 

Business confidence is an important ingredient for much needed fixed investment, which helps spur job creation and economic growth.

RMB/BER business confidence index (BCI) slipped two points to 31, dragged down primarily by new vehicle dealerships.

The confidence levels among new car dealerships slipped to the lowest point since the early days of the Covid-19 pandemic, suggesting that consumers’ spending was taking strain from the high-interest rate environment. Traders also reported on very high inventory levels, according to the survey.

The only other sector to report a decline in confidence was wholesale, albeit a much smaller downtick. Confidence fell from 38 to 36 index points as sales volumes continued to move lower.

Following a two-point decline in third quarter, confidence among building contractors was unchanged at 41 index points. The activity indicator suggests that the growth momentum is still going, albeit somewhat slower compared to the last few quarters. There is a risk that confidence in the residential sector could fade in coming quarters as high borrowing costs hurt demand in the residential property sector.

While remaining at a very subdued level relative to most other sectors, manufacturing business confidence ticked up to 26 index points, the highest level this year. The improvement in domestic and particularly export demand, as well as higher production volumes amid less frequent and less intense load-shedding supported sentiment in the sector.

The most positive development was the 15-point surge in confidence among respondents in the retail sector. Following two straight declines in the first and second quarter of the year, confidence recovered through the second half to end the year at 47 index points — equal to the average reading in 2022. However, the underlying survey results warrant some caution as overall sales volumes slowed with the non-durable retailers reporting the steepest decline.

“Structural supply constraints around infrastructure and electricity remain a key challenge to operating in the SA business environment,” said Isaah Mhlanga, chief economist and head of research at RMB.

“However, the decline in the RMB/BER business confidence index also reflects underlying demand weakness, the best example being the depressing outcomes for the interest-rate-sensitive new vehicle dealers this quarter, but local sales volumes remained sluggish across the board”.

mahlangua@businesslive.co.za