Black mood dominates economy

Johannesburg - There is no evidence yet of an approaching recovery in the economy, said the South African Chamber of Commerce and Industry (Sacci) on the release of its latest business confidence index (BCI) released on Thursday.

Sacci's BCI showed a slight dip from 81.9 points in April 2009 to 81.8 in May 2009. It was a marginal decline, but the index is still 11.7 points lower than the average for the first five months of 2008.

"It again confirms there is no evidence yet of an approaching recovery. From a slow start of 82.4 in January 2009, the BCI has now remained around the 82 level for the last few months," Sacci said.

Statistics SA's real gross domestic product growth figures showed a drop of 6.4% in the first quarter of the year, from a 1.8% decline the previous quarter. It confirmed the country's first recession in 17 years.

The BCI is a composite weighted index of 13 sub-indices, some of which include the average monthly weighted exchange rate of the rand against the US dollar, core consumer inflation for metropolitan and urban areas, the real predominant prime overdraft rate and new vehicle sales.

According to Sacci, business confidence was under less downward pressure in May as the business environment recovered from the impact of fewer business days in April 2009.

"Nonetheless, liquidations were 47% higher in the first four months of 2009 than in the first four months of 2008, while negative month-on-month changes were also recorded for the sub-indices on real retail sales, import volumes and export volumes."

The survey showed six of the 13 sub-indices remained virtually unchanged between April and May 2009. Those six indices were manufacturing, vehicle sales, building construction, inflation, private sector borrowing and precious metal prices.

The three indices which showed a positive change were share prices, real financing cost and the rand exchange rate.

The currency strengthened from R8.49/$ at the end of April to R7.94 at the end of May.

"Emerging trends suggest that improved prospects for the world economy are on the horizon," Sacci said. "Although sentiment helped to move markets ahead of real performance, it nevertheless signals a changing business mood."

A recovery from the global recession may be drawn-out, as some structural corrections have to take place in advanced economies before it can filter through to influence emerging economies, it said.

"The recession is causing adjustments in the local economy that could result in structural difficulties over the longer term. Noticeably, the decline in manufacturing output could hold serious consequences for investment and job prospects."

Sacci said the recovery in business confidence will be a laboured process, rather than a sudden turnaround.

- Fin24.com