Confidence bounces back

Johannesburg - Business confidence in South Africa has bounced back to levels last seen before the international market turmoil of 2008 and the subsequent recession, according to the latest Business Confidence Index (BCI) released on Monday by Rand Merchant Bank and the Bureau of Economic Research.

The BCI jumped to 47 points in the third quarter of the year, from a depressed level of 36 in the second quarter.

A BCI reading of 51 indicates that more than half of the respondents rate the prevailing business conditions as satisfactory.

RMB chief economist Etienne Le Roux described the numbers as "encouraging". He said that the weak confidence levels recorded during the second quarter were an aberration in the upward trend of the recovery.

The third-quarter number is evidence of the domestic growth drivers starting to gain traction in the economy.

"Manufacturing production edged up despite the relatively strong rand, and the low level of interest rates supported sales of particularly motor vehicles and semi-durable goods," said Le Roux.

Fewer lay-offs

"Meanwhile, firms of all sectors retrenched fewer people during the third quarter," he said.

The new vehicle trade and retail sectors were the most optimistic about business conditions. In fact, confidence in the new motor trade is at its highest level in four years - almost at highs last experienced when the car market was at the height of its boom in 2006.
 
Sectors still lagging in the recovery are construction and manufacturing. Both posted small gains in confidence, but remain fundamentally weak and a major recovery is not expected in either during the current quarter.

Monday's BCI figures reflect a similar trend in the Purchasing Managers Index (PMI) - another measure of manufacturing activity in South Africa - which was released late last week by Kagiso Securities.  

The PMI for August also reflected a rebound in activity, with the index clocking in at 50.3 points. Any reading above 50 indicates the sector is expanding.

RMB expects to see a further increase to around 50 points or slightly above it in the fourth quarter of the year, which would be consistent with gross domestic product growth forecasts of around 3% for the second half of the year.

Meanwhile, RMB economist Carmen Nel said responses to the BCI survey reflect an element of hope for a further rate reduction of 50 basis points when the Reserve Bank's Monetary Policy Committee meets on Wednesday and Thursday this week.    

 - Fin24.com