Business confidence up

Johannesburg - Rand Merchant Bank's latest business confidence indicator is another sign that SA is on the path to recovery, after Tuesday's release of positive economic growth data pointing to the end of a recession.

"Following sharp and persistent declines from a level of 85 in the third quarter of 2006 to a low of 23 three years later, the RMB/BER [Bureau for Economic Research] business confidence index rose by five points to 28 during the fourth quarter of 2009," it said.

On Tuesday, economic growth data or GDP on a quarter-on-quarter (q/q) seasonally adjusted annualised basis rose by 0.9% in the third quarter of 2009, breaking a string of negative data in the three quarters before. The figures proved SA was out of a technical recession, defined as two consecutive quarters of negative growth.

RMB said business confidence increased in three of the five sectors covered in the survey.

"This indicates that a growing - although still small - number of respondents rated business conditions as satisfactory. The upturn in confidence is consistent with other leading indicators, which usually precede a recovery in economic activity."

Confidence rose strongest for new vehicle dealers, with the index increasing from zero at the end of last year to 19 in the third and 29 in the fourth quarter of 2009.

The survey also showed a positive turnaround in retailer and wholesaler confidence.

Fragile but encouraging

However, on the other end of the scale, building contractors' confidence gave up the one index point it had gained during the third quarter and returned to a level of 23, Also, although small, the three index point decline in manufacturing confidence to 19 came "as a disappointment", according to RMB.

"From the survey results it would appear that increasing pressure on margins, among other factors, attributed to the impact of the strong rand as well as rising input costs, somewhat dampening the mood of manufacturers during the fourth quarter of 2009."

Although business confidence remains low in absolute level terms and is still fragile, the small fourth-quarter uptick is encouraging and points to a three-year decline finally having come to an end, said RMB's chief economist Ettienne le Roux.

"Also pleasing is that business confidence during this cycle did not fall to the same low level seen during previous economic downturns, this despite what has been a severe recession that technically lasted for nine months until the end of the second quarter of 2009," he said.

The fourth-quarter upturn in confidence - coupled with respondents' expectations of more advances in the new year - is consistent with further improvement in business conditions and a recovery in overall economic activity in the quarters ahead.

- Fin24.com