The Rand Merchant Bank/Bureau for Economic Research (RMB/BER) Business Confidence Index (BCI) ticked down by one point to reach 30 in the first quarter, indicating that business conditions deteriorated further.

The index level indicates that seven out of ten survey respondents are unsatisfied with prevailing business conditions.

A longer-term perspective shows a concerning picture as fewer than four out of ten survey respondents were satisfied with prevailing business conditions for seven consecutive quarters, says RMB chief economist and head of research Isaah Mhlanga.

Business confidence among building contractors and wholesalers was, again, largely unchanged. However, declines in sentiment in the retail and manufacturing sectors outweighed a ten-point improvement among new-vehicle dealers.

“Supply constraints, including loadshedding, logistical challenges and heightened global and domestic policy uncertainty keep South African businesses in a stranglehold. Another drag comes from lacklustre demand, which is insufficient to sustain production and trade sales volumes at a higher level. A temporary surge in building activity also seems to be fading,” he highlighted.

Business activity broadly remained poor while business conditions deteriorated further. As was the case in the fourth quarter of 2023, this result went against survey respondents’ expectations for an improvement.

Remarks about the negative impact of loadshedding, the state of the local ports, crime and political uncertainty featured prominently in the feedback from survey participants, Mhlanga says.

“Another noteworthy development was an acceleration in selling price inflation across the board. Except for retail, the increases were relatively muted, but it does signal that there is an upside risk to the inflation outlook,” he notes.

The expectation of moderating inflation, albeit with the survey showing some near-term upside risks, and possibly lower borrowing costs owing to an expected shallow cutting cycle of the policy interest rate, may help with local consumer demand in the second half of the year.

“While there has been some positive movement on alleviating some supply-side pressures, particularly energy owing to private sector investments, much more needs to be done in implementing economic reforms that can generate the kind of economic growth that can pull along non-energy investment, lift sentiment and generate employment,” he emphasises.

Meanwhile, building contractors were once again the least pessimistic of all sectors surveyed, although wholesalers temporarily took the top spot during the fourth quarter of 2023, with business confidence ticking up by one index point to 42.

Main contractor activity was somewhat better than in the fourth quarter of 2023.

However, the underlying data does suggest that, following a short-lived surge in activity from the third quarter of 2022 onwards, growth in building activity normalised from the end of 2023 into the first quarter, he points out.

The other two sectors where confidence improved were wholesalers and new-vehicle dealers. Wholesale confidence increased by one index point to 37, which is equal to the average reading seen in the second half of 2023. Sales volumes of consumer goods looked significantly better this quarter, said Mhlanga.

Notably, new vehicle dealers saw confidence jump up by ten points to 16, but this was not enough to reverse the 24-point decline in the fourth quarter. New vehicle dealers remain the most depressed of all sectors surveyed, indicating a consumer squeeze from high interest rates, he points out.

Further, a 13-point decline in retail confidence countered the improvements in wholesale and new vehicle dealers.

Total sales volumes were better in the first quarter on the back of significantly less negative non-durable goods sales and a surprisingly solid uptick in semi-durable goods sales volumes.

However, durable goods sales deteriorated once more, particularly on the hardware side. Overall profitability also came under pressure, which likely weighed on confidence, he said.

Meanwhile, manufacturers saw confidence fall by five points to 21, which is equal to the average confidence reading of 2023 and acted as another drag on the composite Index.

“A weakening in activity as well as both domestic and export demand explains the deterioration in confidence. Worryingly, respondents turned even more downbeat about investment and business conditions going forward,” Mhlanga notes.