Johannesburg — BUSINESS confidence jumped last month, buoyed by a strong rebound in factory output and declines in company failures, but hefty electricity price hikes and soaring official debt costs remain a concern.

The South African Chamber of Commerce and Industry said yesterday that its business confidence index (BCI) rose to 83 from 81,2 in January, its highest level since October last year.

The news added to a spate of positive economic data and surveys suggesting that SA's recovery from recession is gathering momentum.

But the business group was circumspect, saying that weak global trade flows and pending electricity tariff hikes were still weighing on overall confidence.

"Business confidence would have received stronger support if the approach to electricity supply and pricing had been appropriately managed over the longer term," the chamber said.

The hike would place a "serious burden on business, notably small and medium businesses", which did not have the bargaining power to negotiate tariffs with Eskom.

The National Energy Regulator of SA last week gave Eskom the go- ahead to increase its tariffs by about 25% over each of the next three years. That will push inflation higher, raise costs for business and in turn curb economic growth.

However, it is less steep than the 35% annual increase requested by the utility.

The chamber also said it was worried about rising debt service costs for the government, and the effect this could have on official spending, which is helping to drive the recovery.

The trend could also lead to tax increases, which Finance Minister Pravin Gordhan hinted at in last month's budget.

Nonetheless, the chamber said the budget was a "reality check" for all stakeholders, which had succeeded in adopting a rational approach to allocating scarce resources for a growing economy.

It also highlighted an unexpectedly strong rebound in factory output, which helped push growth up to 3,2% in the final quarter of last year from 0,9% in the previous quarter. Manufacturing production appears to be gathering momentum, with a key industry survey earlier this week showing that activity surged to a three-year high last month.

"The case for sustainable business confidence improvements has strengthened," the chamber concludes. "Key economic indicators have shown resilience and a preparedness to contribute to stronger economic performance."

Within the BCI, six indicators were positive compared with the previous month, and seven negative. Company liquidations, manufacturing, retail sales, construction, inflation and the rand's exchange rate were all supportive. But declining exports, imports, new vehicle sales, share prices, credit, and metal prices all weighed on the index.

The chamber pointed out that the BCI scaled a recent peak of 85,5 in September last year after dipping to a low of 78,9 during March.

"Although the February reading is a moderate improvement, the BCI appears rangebound since September 2009," it said.

Compared with the year-earlier month, eight components of the BCI were positive while five were negative - exports and imports, retail sales, construction and credit.

Borrowing by the private sector has fallen for four months in a row, hit mainly by sharp cutbacks in corporate credit demand. Household credit is growing, albeit modestly.

The budget's " tone for growth and employment creation over the longer term would support business confidence", the chamber said.