Mariam Isa
11 November 2009
Johannesburg — BUSINESS confidence dipped last month, showing that SA's economic recovery remained tentative, the South African Chamber of Commerce and Industry (SACCI) said yesterday.
The retreat suggested that the momentum of any recovery "appears lacklustre" and efforts to stimulate the business environment had to stay in place, the SACCI said.
Its business confidence index (BCI) fell by 3,3 points to 82,2 last month, its lowest level since May.
The index hit a trough of 78,9 in March but is well below its average levels over the past six years.
"We weren't surprised by this fall but we were disappointed," the chamber's CE, Neren Rau, told Business Day. "We have previously said that the index could be plagued by a one step back and two steps forward phenomenon."
The index, based on 13 indicators, showed that business needed to see a pick-up in economic activity and not just a more favourable financial environment, the SACCI said.
SA's economy has contracted for three quarters in a row, marking its descent into the first recession since 1992. Figures for the third quarter have yet to be released, but many analysts think output was flat or fell further during that period.
"Confidence in the economy is lacking, both on a consumer and a business level," said Brait economist Colen Garrow. "Things seemed to have bottomed but there's a long way to go. We will probably only see positive signs of a real recovery in the fourth quarter of this year."
The SACCI said it was concerned that a sharp rise in government borrowing could be underestimated and would pressure the domestic savings pool available to the private sector.
It was referring to news last month that the budget deficit would soar to 7,6% this year -- a 40-year peak -- from 1% last year. At the same time, the public sector borrowing requirement is expected to leap to 11,8% of gross domestic product (GDP) from 8% last year.
But the SACCI also said business confidence would benefit from an easing of exchange controls in the Treasury's medium-term budget, which should "contribute to the rand finding its true level".
There is rising concern about the currency's rally this year, which makes local exports less competitive and increases demand for imports.
The unit has appreciated 28% against the dollar so far this year, and about 19% against a trade-weighted basket of currencies. Rau said with global trade picking up, the rand's strength had become a problem, and it would be better if it was trading at about R8/. But a rapid weakening would not be healthy either, as it would cause problems for SA's importers.
Most of the country's economic indicators were stuck below their long-term trend lines, the SACCI said. Finance costs, household debt levels, job insecurity and a sharp rise in unemployment have all curbed private sector borrowing. Nearly 1- million jobs have been shed so far this year, official data have shown.
At the same time, credit extended to the private sector rose just 1,6% in September compared with the same month last year -- its slowest pace in more than four decades.
The SACCI said this implied that, in real terms, spending financed by credit shrank more than 4%.
Last month, seven of the BCI components had a positive effect, including imports and exports, share prices, construction, inflation and precious metals.
Five indices were negative, including company liquidations, factory output, retail sales, new vehicle sales and real finance costs.
"Government's strategies must be based on proactive responses to evolving economic conditions ... to re-establish confidence among stakeholders," the SACCI said.
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