The Rand Merchant Bank (RMB)/Bureau for Economic Research (BER) Business Confidence Index (BCI) dropped from 46 to 42 in the second quarter – a similar level to that recorded in the second half of 2021.

"Various shocks over the past year have contributed to keeping confidence this low and many uncertainties remain," RMB and the BER state, adding that nearly six out of ten respondents view prevailing business conditions as being unsatisfactory.

The second-quarter survey was conducted between May 11 and 30, covering around 1 300 executives in the building, manufacturing, retail, wholesale and new-vehicle trade.

"The headline result, while discouraging, hides large variations among the sectors. Although manufacturers and new-vehicle dealers experienced a sharp deterioration in sentiment, building contractors by contrast turned decisively more upbeat.

"Confidence among retailers and wholesalers remained largely unchanged at relatively high levels," RMB and the BER note.

Manufacturing confidence dropped from 43 to 29 in the second quarter.

This fall can mainly be attributed to the significant direct and indirect impact the temporary closure of the Toyota plant (due to the flooding in KwaZulu-Natal) had on overall manufacturing production and exports. On top of this, production also came off the boil in most other subsectors, except for food manufacturing, the entities add.

Motor confidence crashed from 54 to 29 mainly owing to stock shortages, a dynamic that has its roots in a global scarcity of certain parts and components that continues to restrict local automotive manufacturing.

Unfortunately, the temporary closure of the Toyota plant in Durban made things worse.

As for the outlier, building confidence jumped from 25 to 46, an increase extending what has been a gradual improvement since sentiment hit rock bottom during the height of the Covid pandemic.

Contractors in the residential property market experienced a notable increase in activity in the second quarter. While the same cannot be said of the non-residential sector, activity did stabilise at a slightly improved (but still depressed) level.

Compared with the other sectors making up the RMB/BER BCI, confidence in construction has taken the longest to return to pre-pandemic levels.

While retail confidence remained unchanged at 49, wholesale confidence edged up slightly further to 58. Although currently the two sectors with the highest index levels, the results varied notably among respondents.

Retailers of durable goods, such as furniture and appliances, encountered a further deterioration in sales volumes, while those of semi-durables, such as clothing and footwear, witnessed continued improvement, albeit off a low base.

Sales volumes of non-durable goods, such as food, were surprisingly strong in the second quarter.

Among wholesalers, suppliers of consumer goods had a better quarter than suppliers of non-consumer goods (for example, chemicals and machinery), where sales volumes worsened.

Price increases have become even more widespread in both retail and wholesale.

RMB and the BER say global energy and food prices are likely to remain high for longer, while real economic activity in China is faltering and the stagflationary shock amplified by the raging Russia/Ukraine conflict will see gross domestic product growth in two of South Africa’s key trading partner countries, the UK and Europe, moderate sharply.

And locally, the country’s electricity supply remains as unstable as ever, all while rising inflation and increasing interest rates will continue to erode households’ spending power.

“There is nothing the government can do about the global headwinds facing the country, but it can advance growth-boosting domestic reforms.

"Best the government pushes hard and builds on the successes Operation Vulindlela has already achieved over the past year,” advises RMB chief economist Ettienne Le Roux.