S. Africa's business confidence index hits record low

Source: Xinhua | 2020-06-11

South Africa's business confidence hit a record low in the second quarter this year, a survey showed on Wednesday as COVID-19 containment measures continued to wreak havoc on the already weak economy.

The Rand Merchant Bank (RMB) business confidence index (BCI), compliled by the Bureau for Economic Research (BER), fell from 18 points in the first quarter to a mere five points in the second quarter of the year, the lowest level since the survey began in 1975.

"COVID-19 has drastically changed the already-weak economic landscape and perhaps, in some cases, permanently. We are likely only beginning to fully appreciate the complexity of the economic impacts of this pandemic," said Ettienne le Roux, chief economist of RMB.

He said the survey was conducted online between May 13 and June 1 on 1,800 executives from five sectors, manufacturers, building contractors, retailers, wholesalers and new vehicles dealers. The index's neutral mark is 50, with a reading below that deemed to be negative.

Business confidence is an important precursor for fixed investment in the economy, which is needed to boost growth and create jobs.

RMB said the decline in business confidence was largely due to COVID-19 and the following lockdown.

"On top of an already weak economy, the sudden appearance of COVID-19 and the subsequent restriction of economic activity to manage the health emergency, produced a huge confidence shock. A BCI plunge to five in the second quarter would be consistent with a contraction in real gross domestic product like never seen before," said the RMB spokesperson Joandra Griesel.

"Throughout the economy firms will likely continue to face an income squeeze as costs rise, while weak demand weighs on prices. Many will have to find new ways of doing business, likely using less staff. As a standout, respondents across sectors are very pessimistic about business conditions ahead," said Griesel.

The bank said most semi-durable (like clothing) and durable goods (furniture and electronics) retailers are doubtful that sales volumes will rise anytime soon.

RMB said the lowest BCI on record was the 12 index points registered during the third quarter of 1985 and the fourth quarter of 1977. The lows were a result of political developments in South Africa.