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Send  Share  RSS  Twitter  08 Mar 2012

ECONOMY: Business Confidence Increases


Recent Western Cape Business News

After a notable decline in the second half of 2011, the RMB/BER Business Confidence Index (BCI) jumped by 14 points to a level of 52 in the first quarter of 2012. This is the first time in over a year that a slight majority of respondents are happy with prevailing conditions in the economy. The business mood improved in all five of the sectors surveyed during the quarter.

New vehicle dealer confidence increased the most, rising by 29 index points to 73 as a greater number of respondents reported higher sales. Encouraging too was the 12 index point jump in the confidence of building contractors to a three-year high of 31. The rate of decline in building activity continued to moderate and respondents expect this trend to persist. Given the likelihood of somewhat weaker consumer spending and exports this year, higher levels of private (and public) sector fixed investment are necessary to sustain the current pace of 3% to 3.5% economic growth.

Retail and wholesale business confidence increased by five and 10 index points to 61 and 48 respectively. As for the retail trade sector, not all respondents saw an improvement in sentiment. The combination of softer sales volume growth and fewer retailers having been able to raise selling prices weighed on the profitability and so the confidence of non-durable and durable retailers. By contrast, retailers of semi-durable goods (mainly clothing and footwear stores) were significantly more upbeat.

Regarding the wholesale trade sector, there was a clear distinction between the wholesalers of consumer goods that reported a drop in confidence, and the wholesalers of non-consumer goods (including machinery and equipment) that saw an increase in confidence.

After languishing at a level of 35 in the second half of 2011, manufacturing business confidence gained 12 index points to 47 in the first quarter of 2012. Lifting the mood was a positive surprise in local sales volumes and related to that an improvement in the pricing power of manufacturers of domestic goods. But manufacturers focused on the export market continued to struggle, with the majority of respondents reporting lower sales than a year before. On a positive note, a growing number of manufacturers reported increased levels of investment, while more respondents in the manufacturing sector also expect investment to be higher in 12 months’ time than had previously been the case.

The improvement in fixed investment intentions of manufacturers is consistent with the recovery in confidence of building contractors and wholesalers of, among others, machinery, construction and building material. Improved investment intentions bode well for higher actual levels of investment in future and so for a rebalancing in GDP growth which up to now has been overly reliant on the consumer”, said Ettienne le Roux, chief economist at Rand Merchant Bank.

The first quarter bounce back in business confidence is a welcome reversal of the declining trend seen throughout the whole of last year. Particularly pleasing was the rise in confidence of building contractors. It points to this sector finally having turned the corner. Also positive was the improvement in manufacturing fixed investment trends which, if sustained, will boost economic growth, job creation and productivity.

Yet, to expect business confidence to increase much further from current levels is a big ask. It might well be that the first quarter gain reflected some catch-up from the final quarter of 2011, when confidence remained low despite some improvement in underlying business conditions. It is also true that in some sectors higher levels of confidence were not supported by better business activity but were more the result of expectations for improved conditions in the future. In addition, the first quarter survey was largely completed before what has been a not so consumer friendly 2012 National Budget and the most recent sharp increase in the petrol price.

Rather than taking the first quarter jump in business confidence to mean that real GDP growth accelerated from the 3.2% annualised rate of the last quarter of 2011, a more realistic expectation is probably that the pace of growth remained more or less the same to that experienced during the fourth quarter of last year.


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