In Q2 2016 the RMB/BER Business Confidence index fell further to 32.0, down 4 index point from the Q1 2016 level of 36.0. This is the lowest level of business confidence in South Africa since the global financial market crisis in 2008/2009. At an index level of 32, business confidence is almost 17 index points below the average level of confidence achieved since 1994. Furthermore, the current level of confidence is dramatically below the previous peak of 87.2 index points in late 2004. At that time the South African economy was growing at over 5% a year.
The second quarter survey of confidence was conducted in May 2016 and covered 1 700 firms spread across the building, manufacturing, retail, wholesale and motor trade sectors.
It is interesting to see that the decline in confidence in Q2 2016 was concentrated in the retail sector, although confidence levels in other key sectors of the economy remain subdued. Retail confidence fell sharply by 18 points in Q2 2016 to 26 index points. This is well below the level that prevailed at the time of the global financial crisis. The retail sector is under increasing pressure due to slowing top-line growth, and rising costs. It has become increasingly difficult for the retail sector to pass-on any cost increase to the consumer.
Overall, the latest business confidence reading of 32 is especially weak and consistent with recession conditions. The low confidence appears to reflect a range of concerns including the impact of the drought, sustained low commodity prices, rising interest rates, an increase in social unrest and political and policy uncertainty. It also suggests that the business sectors has, unfortunately, become increasingly reluctant to increase fixed investment spending and expand employment.
Please follow our regular economic updates on twitter @lingskevin
Download the presentation slides