Business confidence recovers noticeably

The RMB/BER Business Confidence Index showed a noticeable recovery in the second quarter. In this video RMB Chief Economist Ettienne le Roux and Economist Siobhan Redford unpack the sector results and impact on GDP growth.

MEDIA RELEASE

9 JUNE 2021

Business confidence recovers noticeably in the second quarter

After declining by five points in the first quarter, the RMB/BER Business Confidence Index (BCI) jumped by 15 to 50 in the second quarter. This means that the number of respondents satisfied with prevailing business conditions now equal those that are unsatisfied – an outcome we have not seen in years. While the improvement in sentiment is no doubt encouraging, uncertainties remain.

The second quarter survey was conducted between 12 and 31 May. It covered about 1300 businesspeople spread across the building, manufacturing, retail, wholesale and motor trade sectors.

Details

Confidence resumed its upward trend in all the five sectors making up the BCI. Confidence rebounded especially sharply in the manufacturing, retail trade and motor trade sectors. By contrast, sentiment among building contractors and the wholesale trade sector improved only marginally.

Manufacturing confidence jumped from 25 to 46 on the back of further increases in both domestic and export sales. Also encouraging was the breadth of the recovery in production output spanning just about every sub-sector surveyed. In some cases, the resurgence of activity in the second quarter would have been even more striking were it not for manufacturers battling with shortages of certain raw materials, delivery delays and other bottlenecks related to the lingering COVID-19 pandemic.

After crashing by 13 points to 37 in the first quarter, retail confidence bounced back strongly to 54. High-income earners with savings to spend, and others with increased appetite for credit, seemingly continue to benefit retailers of durable and semi-durable goods at the expense of those selling food and groceries (which have seen sales volumes moderating of late). Beginning to weigh on retailers of non-durable goods are recipients who no longer benefit from specific COVID-19 income support measures.

New vehicle dealer confidence leapt from 35 to 63 as sales posted another strong performance. Notably, some dealers have begun complaining about stock shortages, a dynamic which likely can be ascribed to the global shortage of semiconductors which has hampered the manufacturing of new vehicles.

Wholesale confidence increased by five points to a still high 63, owing mainly to spending on non-consumer goods catching up with continued strong outlays on consumer goods.

Of all the sectors making up the BCI, the building sector remained the most downtrodden. Confidence edged up only marginally from 20 to 22. The demand for new buildings remained lacklustre, with conditions in the non-residential property market remaining far more challenging than those in the residential market which continues to benefit from, among other factors, small projects such as additions and refurbishments.

Bottom line

At 50, the RMB/BER BCI is a far cry from its pandemic-stricken all-time low of just five points a year ago. This notable rebound, plus the fact that business confidence is now even higher than pre-COVID-19 levels is welcome news.

Still, however encouraging the improvement in sentiment is, uncertainties remain. Various risks such as the fast-spreading third wave of infections, the danger of additional lockdown restrictions being imposed, Eskom’s electricity grid that looks increasingly unstable and the looming threat of industrial action could easily still knock confidence in the period ahead. Notable too is the fact that the rebound in the BCI thus far has mainly been driven by consumer-sensitive sectors, while confidence in sectors linked to the supply-side of the economy remains distinctly lower - a theme yesterday’s first quarter GDP release corroborated.  

“In the end, for the current cyclical economic recovery to develop into a durable business-cycle upswing, jobs must be created, and for that to happen, fixed investment must accelerate. To this end, it would help if the government fast-tracks its infrastructure drive, while simultaneously, and speedily, implements overdue business-friendly reforms,” said Ettienne le Roux, chief economist at RMB.

 End

Contact:

Joandra Griesel l Rand Merchant Bank l joandra.griesel@rmb.co.za l 082 462 6741