BUSINESS confidence in South Africa remained in contractionary territory despite slightly improving at the beginning of this year, buoyed by strong domestic sales and exports.
However, the Rand Merchant Bank (RMB) warned that business sentiment could be dealt a blow by geopolitical tension in eastern Europe.
The RMB/BER Business Confidence Index (BCI) increased to 46 points in the first quarter of 2022 after remaining unchanged at 43 in the fourth quarter of 2021.
This means that business confidence this quarter reached its highest level since the second quarter of 2021 before the July civil unrest.
Although this is just below the neutral-50 mark reached in the second half of last year, RMB said the latest reading was nonetheless “encouraging”.
The latest print also equals the BCI’s long-term average which, at 46, is a far cry from the 5-index-point low recorded at the height of the Covid-19 pandemic in 2020.
The survey, conducted in February before the Russian invasion of Ukraine, covered 1 300 senior executives in the building, manufacturing, retail, wholesale, and motor trade sector.
RMB chief economist Ettienne le Roux said underlying demand conditions remained comparatively strong in the first quarter, especially in the case of new vehicle trade, some segments of retail, and in manufacturing.
Le Roux said the improvement in sentiment pointed to the economic recovery, temporarily interrupted in the third quarter of last year, having continued into 2022.
“However, the stagflationary shock brought about by Russia’s invasion of the Ukraine has now triggered a significant degree of uncertainty around global, and by implication, SA’s GDP growth prospects,” Le Roux said.
“This is most unfortunate as it happens at a time when the economy seems to have been well on its way to a full recovery from the significant output losses incurred in 2020.”
South Africa’s economy posted a strong rebound of 1.2 percent in the fourth quarter, shrugging off the impact from the month-long strike by metal workers, load-shedding in November and the presence of the Omicron variant.
The end of 2021 rebound appears to have been carried over to the first quarter of 2022 as RMB said that of the three sectors that showed an increase in confidence, new vehicle dealers saw the biggest improvement, recovering from 41 points in the fourth quarter to 54 points in the first quarter.
RMB said improved supply made for increased sales, but even so dealers could not fully satisfy demand as stocks remained below satisfactory levels.
Wholesale confidence rose to 57 points boosted by non-consumer goods such as machinery and chemicals, while manufacturing confidence also jumped from 38 to 43 points owing to continued strong domestic sales and exports.
However, retailers of non-durable goods saw the biggest deterioration in confidence as sales subsided alongside rising food price inflation, while confidence of building contractors retreated to 25 in the first quarter.
BUSINESS REPORT ONLINE