Sentiment in the business sector remained in the contractionary territory in the third quarter of 2024 in spite of gradually improving as a result of structural reforms embarked on by the Government of National Unity (GNU).
The RMB/BER Business Confidence Index (BCI), released yesterday, rose by another three points to reach 38 in the third quarter, still below the 50-points mark that separates contraction from expansion, following a five-point increase in the second quarter.
This is the first business sentiment survey in South Africa following the formation of the GNU and reflects cautious optimism about improving business conditions.
RMB said that although respondents still noted constraints, especially weak demand, they were less negative about current conditions and, encouragingly, were more upbeat about business conditions going forward.
For the first time since early 2022, a slight net majority of respondents across the different sectors expect business conditions to improve in the next quarter.
RMB chief economist Isaah Mhlanga said the improvement in sentiment was likely supported by a continued absence of electricity supply disruptions and political certainty following the May 29 election.
However, with continued pressure on local consumers observed across the sectors and sluggish export demand noted by manufacturers, Mhlanga said there was not enough demand to fuel a faster uptick in sentiment.
“Fortunately, the widely anticipated interest rate cut in South Africa later this month, on the back of lower consumer inflation, and a boost from the introduction of the two-pot retirement system should spur domestic demand through the remainder of the year,” Mhlanga said.
“This should benefit sentiment, but logistical constraints remain top of mind and will need to be urgently tackled to support a sustained lift in business confidence”.
New vehicle dealers registered the biggest increase in confidence, rising by a solid 17 points to 27 in the third quarter, a one-year high. However, despite the big surge, the sector remains the most pessimistic with less than three in ten respondents satisfied with prevailing business conditions.
Despite a two-point drop from the second quarter, the wholesale trade was still the most optimistic sector surveyed, with just over half of respondents satisfied with prevailing business conditions.
Retail trader confidence improved from its long-term average of 39 index points to an above average 45 index points in the third quarter.
Confidence in the manufacturing sector remained unchanged at 28 index points amid a general improvement in the assessment of current business conditions.
Mhlanga said the slight expansion of 0.4% quarter-on-quarter in GDP in the second quarter meant that activity did not materially improve.
However, he said another positive outcome was likely in the third quarter though a recovery in demand was required to get momentum going.
“The improvement in the forward-looking investment indicator is encouraging and would provide a real impetus to economic growth, but we need to see higher confidence for this to materialise,” he said.
Casey Sprake, investment analyst, Anchor Capital, said they remained hopeful for a more favourable business environment.
However, Sprake said a print of 38, which is well below the neutral 50 mark, was indicative of continued depressed business sentiment, adding that there was still a long way to go yet for business to achieve a level of neutrality regarding economic prospects in the country.
“Despite the slight improvement in sentiment for the third quarter of this year, the reality is that business confidence still remains far too low to spark a meaningful resurgence in investment activity,” Sprake said.
“Last year, however, investment saw a sudden spike, but this was mainly driven by energy-related machinery purchases spurred by tax incentives and the urgent need to counter the debilitating effects of load shedding.
“This reactive investment was aimed at business survival rather than expansion. While there is cautious optimism about the new GNU and the potential for faster reform implementation, significant challenges persist. High capital costs and the slow recovery of business confidence continue to pose obstacles.
“Nevertheless, looking ahead, there is hope for a more favourable business environment that could stimulate investment across various asset classes.”
BUSINESS REPORT