Business confidence update: business confidence index rises modestly in Q3.17 but sentiment remains at depressed levels

12 Sep 2017

Annabel Bishop

Chief Economist

Figure 1: RMB/BER confidence index
  • The RMB/BER business confidence gauge rose to 35 in Q3.17 from 29 in Q2.17, with “no major new unsettling political events” occurring “during the survey period” according to the survey report.
  • However, business confidence remains depressed with the gauge entrenched at levels below 50. This contrasts with the international backdrop whereby global private sector confidence has been strengthening, as global growth and trade have rebounded from post-crisis lows reached in 2016.
  • In Q3.17, index levels increased in four of the five underlying sectors but pessimistic sentiment remained prevalent, with all the readings below the neutral level of 50 (see figure 1).  
  • Following sharp declines in Q2.17, sentiment levels improved in the motor trade and manufacturing sector on respectively, increased sales and production volumes.
  • The RMB/BER survey report expects that a further strengthening in building confidence will be restricted by “a challenging operating environment characterised by ample supply of most types of non-residential buildings, continued hesitancy among banks to ease credit standards for extending mortgage loans, and the government’s capex budgets being under pressure”.
  • Retail and wholesale confidence levels remained relatively unchanged, reflective of modest growth in trade volumes. Depressed consumer confidence, high unemployment, subdued credit extension and modest growth in disposable income have affected consumers’ willingness and ability to spend. 
  • Depressed business confidence continues to manifest in declining investment, of 2.5% y/y in H1.17 after a 6.8% y/y contraction in 2016. In addition, sustained and meaningful private sector job creation is absent.
  • Moody’s recently cautioned that it expects “that a continued stalemate on structural reforms in the lead up to ANC leadership elections will (…) continue to depress already weak business confidence, impeding any meaningful rebound from its current 32-year lows.” 
  • Moreover, the agency assessed that “(a)ny slowdown in projected fiscal consolidation as a result of increasing social spending (rather than progrowth oriented capital outlays or spending on human capital) risks further weighing on business confidence, deterring investment and weakening potential (longer-term) growth.”
Figure 2: GDP vs. BCI: Business Confidence leads growth