Following three consecutive increases, the RMB/BER Business Confidence Index (BCI) remained unchanged at 45 index points in the first quarter of this year.

While a touch above the long-term average reading of 43 points, and well above the sentiment level recorded at the start of 2024, RMB and BER say it is worrying that four of the five sectors saw confidence slip relative to the fourth quarter of last year.

The index indicates that new-vehicle dealers saw a 29-point surge in confidence, which offset the decline in confidence of all other sectors.

A confidence reading of 45 points means that a slight majority of respondents across sectors are pessimistic about current business conditions in South Africa.

The survey took place from February 5 to 24, with the bulk of responses received early in the survey period.

This means that many responses were received just after US President Donald Trump announced that the US would cut all aid to South Africa.

While this would have had little direct impact on the sectors surveyed, it signals a further souring of already strained US-South Africa trade relations, the companies note.

They explain that these concerns were featured in some of the comments from survey respondents, with references to worries about the impact of the continuation of the African Growth and Opportunity Act (Agoa).

That said, not all concerns were globally driven.

RMB and BER note that respondents in the building and manufacturing sector, in particular, were worried about ArcelorMittal South Africa’s decision to close its longs business and domestic demand in general.

The majority of responses were also received prior to the delay in the tabling of the National Budget.

“In all, despite the composite activity indicator ticking along at an elevated level and, in fact, even increasing slightly from quarter four, business sentiment did not improve further,” the companies point out.

DETAILS
RMB and BER explain that the changes in sentiment relative to the previous quarter present a reversal from what transpired in the fourth quarter of 2024.

The recovery was broad-based during the last quarter of the year, with all but new-vehicle dealers seeing higher confidence.

“In the first quarter of 2025, new-vehicle dealers joined the party late and saw a surge in confidence, while all other sectors saw confidence decline.”

Considering the levels, new-vehicle dealers and retail traders have confidence readings well above their long-term average, while the remaining sectors see confidence around long-term levels.

The first-quarter survey results are thus not a bad outcome, but signal that the recovery – seen in the second half of 2024 – has stalled, the companies note.

New vehicle dealers' confidence increased by 29 points to 52. Although new-vehicle traders tend to see sharper swings in confidence than the other sectors, this was still a significant upsurge.

The rise in confidence was underpinned by a big improvement in sales volumes with somewhat lower interest rates, two-pot retirement withdrawals and pent-up demand providing a boost.

A renewed knock to the consumer, in the form of, for example, higher taxes or lower sentiment, presents the biggest risk to the sector. Should confidence reverse, it would drag the composite BCI lower – unless other sectors can pick up the slack, they explain.

Despite a slight dip in confidence, the retail sector experienced another strong quarter. Sales volumes remained positive for a second consecutive quarter.

Meanwhile, the index notes that wholesale traders saw the biggest decline in confidence in the first quarter, although it came from an elevated level.

The drop in confidence corresponds with a drop in sales and a deterioration in business conditions in the sector.

Building contractors stayed in the middle of the pack, with confidence ticking down by six points to 45.

“This is still somewhat above the long-term average reading. It is quite encouraging that respondents are fairly optimistic about the next quarter, especially in terms of activity.”

Finally, manufacturing business confidence dipped by two points to 34. While export demand remained surprisingly resilient, domestic demand was weaker.

Production improved relative to the fourth quarter, but investment dropped back somewhat.

BOTTOM LINE

RMB chief economist Isaah Mhlanga warns that some of the survey results can be seen as flickering warning lights.

Without the sharp improvement in new-vehicle dealers’ confidence, the BCI would have declined at the start of the year, but the optimism by new vehicle traders is underpinned by strong underlying performance and thus warranted.

“The consumer-linked sectors still performed well in the first quarter, but the question is whether this momentum can be sustained in coming quarters or whether the more industry-linked sectors can take over the baton of growth,” says Mhlanga.

RMB and BER note that the boost owing to withdrawals from the two-pot retirement savings will fade, while interest rates are unlikely to move much further down in an environment of slightly rising inflation.

Possible tax increases could burden the consumer further, while more geopolitical uncertainty could undermine confidence.

In all, RMB and BER express that the survey results suggest that, even though sentiment stalled, growth could tick along in the first quarter of 2025 after a 0.6% quarter-on-quarter expansion in real GDP was recorded in the fourth quarter.

“Encouragingly, many respondents remain fairly optimistic about next quarter, but we need to see a real recovery in demand and activity, or firm action on the structural reform front, to underpin renewed confidence increases,” they note.