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CEO confidence falls in second quarter

Johannesburg - The Merchantec CEO Confidence Index recorded its biggest drop to date‚ falling 10.07 points‚ to a score of 55.5 in the second quarter of 2012 amid resurgent concerns over market conditions and a general lack of confidence in the health of the global economy.

The index collates views from over 100 CEOs of top South African companies and provides a leading indicator into how business leaders perceive local market conditions and the economy going forward.

About 70% of SA CEOs confirmed that their business was more affected by economic conditions in Europe than those in China‚ emphasising the importance of the eurozone as SA’s major trading partner.

Consequently‚ the dampening of growth and demand from this region has considerably dented confidence on the whole.

CEOs’ confidence in economic conditions decreased dramatically in the second quarter‚ falling 23% to a score of 47.3.

Factors contributing to this were uncertainty over the ongoing European debt crisis and the potential contagion from Greece to other highly indebted eurozone countries.

In addition‚ recent data which reflected a quicker than expected cooling of the Chinese economy and higher unemployment levels on the local front were plaguing confidence in the economic conditions component of the index.

It appeared that the higher levels of confidence in the first quarter were as a result of expectations for improved conditions in the future, and not necessarily as a result of improving business activity.

The consumer goods sector recorded the largest decline in confidence‚ showing a 27% fall to a score of 47.5‚ the lowest across any sector.

This drop in confidence was not entirely unexpected given the steep price increases in petrol‚ electricity and taxes during April 2012 which have had an adverse effect on inflation prospects and consumer spending.

The financial sector recorded the only rise in confidence with a 1.5% increase in sentiment to a score of 67.3.

This sector showed caution in the first quarter, recording the lowest increase in sentiment. As a result, it did not reflect an overly optimistic base from which to fall.

The improvement in sentiment in the second quarter came as a result of CEOs’ increased confidence in their company growth prospects‚ their ability to raise debt or equity capital and their planned level of investment in their company’s business activities.
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