CONFIDENCE: Business Index Takes A Breather
Recent Western Cape Business News
After surging by 20 index points over the course of just two quarters – from a low of 23 during the third quarter of last year to 43 during the first quarter of 2010 – the BER Business Confidence index (BCI) partly reversed track during the second quarter. The index eased by seven points to a level of 36 (The RMB/BER BCI can vary between zero and 100, where zero indicates an extreme lack of confidence, 50 indicates neutrality and 100 represents extreme levels of confidence.)
While the drop in confidence is disappointing, it is not entirely unexpected as it follows the largest improvement in sentiment between consecutive quarters in 15 years. The second quarter decline can therefore be partly attributed to confidence merely returning to more realistic levels.
Confidence in all five sectors making up the RMB/BER BCI fell. The largest declines occurred in the retail and motor trade sectors, the same sectors which saw confidence increasing the strongest in recent quarters.
· In the retail sector, nearly all of the 16 point gain experienced since the third quarter of last year was lost, as confidence dropped by 13 index points to 38 during the second quarter of 2010. Declines were particularly notable in the case of the durable (furniture, appliances and electronic goods) and semi-durable goods sectors (clothing and footwear). The confidence of dealers in non-durable goods (food and groceries) eased to a lesser extent.
· Confidence in new vehicle trade tumbled from a high 60 to a neutral level of 49 in the second quarter. Confidence fell not because sales performed poorly – they actually were at a four-year high during the second quarter – but rather because dealers are beginning to doubt whether the current strong growth in sales can last.
· The second quarter brought no relief to the two laggards, the building and manufacturing sectors. Confidence in the building sector fell further from an already low 26 to 20 index points, while the business mood in manufacturing largely remained unchanged at a level of 27 (compared to 28 previously). Both building contractors and manufacturers rated insufficient domestic demand as the biggest constraint they face. Weaker export demand also played a role in the case of certain manufacturers.
· Wholesaler confidence declined by a minuscule 3 index points to 47.
The latest RMB/BER BCI results are sobering in that they remind us that business confidence does not always follow a smooth upward trend but at times will be interrupted. The second quarter turned out to be such an event, similar to what happened in 1978 and 2000 when the RMB/BER BCI reached levels in the mid-40s. In retrospect, the latest survey results would seem to indicate that initial expectations of a further sharp acceleration in real economic activity were misplaced with confidence now merely having returned to levels which better reflect actual underlying growth trends.
Business News Sector Tags:
Fax 2 Email
Study IT Online
Work from Home