SENTIMENT in the business sector in South Africa has deteriorated further and remained firm in the contractionary territory as the manufacturing and construction industries continue to under-perform.
However, there is uncertainty over whether this signalled yet another contraction in real gross domestic product (GDP) in the third quarter following dwindling economic growth performance in the second quarter.
The RMB/BER Business Confidence Index (BCI) released yesterday declined further from 42 points in the second quarter to 39 in the third quarter, the lowest since the first quarter of 2021.
South African business confidence has been stuck in the low 40s since mid-2021 due to a string of shocks ranging from industrial action, crippling rotational power cuts, the war in Ukraine, and the devastating floods in KwaZulu-Natal, one of the country’s manufacturing hubs.
RMB said that sentiment remained poor as the majority of respondents (61 percent) were dissatisfied with prevailing business conditions.
It said that morale deteriorated mostly among constructors, due to shortages of some materials, load shedding and planning delays.
Sentiment among building contractors deteriorated by 17 points to 29 points in the third quarter from the impact of several confidence-sapping factors such as ongoing delays in the authorisation of building plans, the postponement of tenders, persistent shortages of certain materials, load shedding and the lack of working capital.
Confidence among manufacturing businesses eased slightly from 28 points to 26 points, notwithstanding an improvement in domestic and export sales volumes, as well as production receiving a boost from the reopening of the Toyota and other flood-damaged plants in KZN, and less intense load shedding in August
RMB chief economist Ettienne le Roux, however, said it was unlikely that the fall in the BCI pointed to another outright contraction in real GDP, as confidence among retailers and wholesalers remained above the long-term averages and signalled solid consumer spending.
Sentiment among wholesalers deteriorated from 58 points to a still-high 50 points, while business morale among new car dealers bounced back to 40 points in the third quarter after falling from 54 to 29 points in the second quarter.
“None of this is to say that the economy will experience strong growth in the year ahead. External headwinds are mounting, interest rates will continue to rise, while the danger of summer power outages is ever-present,” Le Roux said.
“But suggestions that the economy is now in the throes of a protracted recession after yesterday’s GDP release is an overstatement.”
Le Roux’s remarks come after Citadel Wealth Management economist Maarten Ackerman on Tuesday said South Africa was at risk of a technical recession if the GDP decline experienced in the second quarter was repeated in the third quarter.
Statistics South Africa on Tuesday revealed that the economy declined by 0.7 percent quarter-on-quarter in the three months to June as activity was disrupted by severe load shedding and devastating floods.
However, Investec chief economist Annabel Bishop said yesterday that the outlook both globally and locally had become more uncertain, as fears of global recession rise, and the world’s largest economic area, the Euro bloc, saw economic confidence drop in August to its lowest level since early 2021.
“Decades-high inflationary pressures (which dent demand), along with energy supply constraints, are seen to be pushing the EU region closer to recession,” Bishop said.
“Europe is a key export market for South Africa’s manufactured goods, with this outcome likely depressing South African manufacturers,” she said.
BUSINESS REPORT