8 July 2014

South Africa: Unintended Consequences Spreading to Business Confidence

The SACCI Business Confidence Index (BCI) for June 2014 was released today at the SACCI Offices in Rosebank, Johannesburg.

Business confidence remained subdued in June 2014 as further adverse economic developments caused the SACCI Business Confidence Index to linger below 90 index points. The index moved marginally to 89.7 in June from 88.9 in May 2014. The June 2014 BCI is 0.5 index points up on May 2013. The average for the BCI for first half of 2014 was 91.1 compared to 91.7 for the first half of 2013.

The negative annual changes (y/y) in the BCI grew as eleven of the thirteen BCI sub-indices were in negative territory in June 2014 compared to eight in May 2014. Only share prices and municipal services showed positive levels compared to last year. Of the six financial sub-indices, only one (the all-share price index of the JSE) made a positive contribution to the BCI relative to June 2013.

Although real economic activity has been of concern for its impact on business confidence, the monetary/financial situation had a notable negative impact on the business mood in June. Inflation was at its highest since July 2009 when CPI inflation measured 6.7% compared to 6.6% in June 2014. The rand depreciated by 10.5% y/y against a weighted British pound, the US dollar and the euro, while the volume of borrowing by households has declined by 1.3% y/y. Gold and platinum US dollar prices are lower than a year ago while real financing costs are higher. A less supportive financial climate for business confidence was prevalent in June.

SACCI is concerned that the broader unintended consequences associated with strike activity in certain areas of the economy is going to have a lasting impact not only on business confidence but on investor confidence and financial stability. Standard and Poor's (S&P) downgraded South Africa on the 13th of June 2014 mainly due to impact of the platinum strike on the economy and cautionary notices remain in place in respect of the metal workers strike.

SACCI hopes that the current round of labour protest activity will be of short duration so as limit the adverse impact on an already fragile economy.

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