South Africa’s business confidence dropped in the first quarter of 2024 according to the latest economic data released on Monday.
The Rand Merchant Bank/BER Business Confidence Index reported a two-point decline in the fourth quarter of 2023 and a further single-point drop in the first quarter of the year to reach 30. This means that seven out of 10 survey respondents are unsatisfied with prevailing business conditions.
“Taking a slightly longer perspective shows a concerning picture as less than four out of ten survey respondents were satisfied with prevailing business conditions for seven consecutive quarters,” the BER index noted.
“Business confidence was, again, largely unchanged among building contractors and wholesalers. Declines in sentiment in the retail and manufacturing sectors outweighed a ten-point improvement among new vehicle dealers.”
According to the index, business activity remained poor while business conditions deteriorated further. Remarks about the negative impact of load shedding, the state of the local ports, crime, and political uncertainty featured prominently in the feedback from survey participants.
“Another noteworthy development was an acceleration in selling price inflation across the board. Except for retail, the increases were relatively muted, but it does signal that there is an upside risk to the inflation outlook,” the BER reported.
Building contractors were the least pessimistic of all sectors, with business confidence ticking up by one index point to 42. However, underlying data suggests that following a short-lived surge in activity from the third quarter of 2022 onwards, growth in building activity normalised from the end of 2023 to the first quarter of 2024.
Confidence improved for wholesalers and new vehicle dealers. Wholesale confidence nudged up by one index point to 37, which is equal to the average reading seen in the second half of 2023.
Sales volumes of consumer goods fared significantly better, while new vehicle dealers saw confidence jump up by 10 points to 16, but this was not enough to reverse the 24-point decline in Q4.
“Indeed, new vehicle dealers remain the most depressed of all sectors surveyed, indicating a consumer squeeze from high interest rates,” the BER noted.
Durable goods sales deteriorated, particularly on the hardware side.
“Overall profitability also came under pressure, which likely weighed on confidence. Another drag on the composite RMB/BER BCI came from manufacturers, which saw confidence fall by five points to 21, which is equal to the average confidence reading of 2023. A weakening in activity as well as both domestic and export demand explains the deterioration in confidence,” the BER noted.
“Worryingly, respondents turned even more downbeat about investment and business conditions going forward.”
According to the data released by Stats SA last week, real GDP was stagnant in the fourth quarter of 2023, registering 0.1% quarter-on-quarter growth after contracting 0.2% in the third quarter. For the full 2023, economic growth averaged 0.6% down from 1.9% in 2022.
RMB chief economist and head of research Isaah Mhlanga said supply constraints, including load shedding, logistical challenges, and heightened global and domestic policy uncertainty, were keeping businesses “in a stranglehold”.
“Another drag comes from lacklustre demand, which is insufficient to sustain production and trade sales volumes at a higher level. A temporary surge in building activity also seems to be fading,” Mhlanga said.
“Looking further ahead, the expectation of moderating inflation, albeit with the survey showing some near-term upside risks, and possibly lower borrowing costs due to an expected shallow cutting cycle of the policy interest rate may help with local consumer demand in the second half of the year,” he said.
“While there has been some positive movement on alleviating some supply-side pressures, particularly energy due to private sector investments, much more needs to be done in implementing economic reforms that can generate the kind of economic growth that can pull along non-energy investment, lift sentiment and generate employment.”
