Six out of ten respondents in a survey conducted by Rand Merchant Bank (RMB) and the Bureau for Economic Research (BER) were unhappy with prevailing business conditions, the RMB/BER first quarter Business Confidence Index (BCI) has shown.

The BCI fell by two points to 41 during the first three months of the year, a move that more than offset the one point increase during the last quarter of 2013. The first quarter RMB/BER BCI was the latest in a four-year trend in which business confidence had essentially moved sideways within a broad 55 and 38 index point band, RMB said.

Banking group Investec pointed out that the BCI reading of 41 was the softest since the second quarter of 2012, which suggested that South Africa’s economic growth would remain relatively subdued.

“Still, despite this uninspiring pattern, underneath the surface there are signs of a rebalancing of sorts unfolding," RMB chief economist Ettienne le Roux said.

The first quarter BCI showed that the trade sectors – new vehicle dealer, retail and wholesale – which had led the economic upswing after the 2008 financial crisis were now faltering.

In the first quarter, confidence in all three sectors extended the decline of the past year, with new vehicle dealer confidence declining by 14 index points to a six-year low of 27, and retail and wholesale confidence dropping to 39 and 47 index points, respectively, from 40 and 51 index points during the fourth quarter of 2013.

“The pace of domestic consumption expenditure has been moderating amid depressed consumer confidence, elevated cost of living and tighter credit conditions. A higher interest rate environment would further dampen domestic demand, given that South African households remain highly indebted,” Investec commented.

However, sentiment among building contractors and manufacturers continued to improve gradually, RMB said.

“The rise in confidence of building contractors and manufacturers accompanied with the deterioration in the business mood of trade sectors is indicative of the source of economic growth increasingly shifting from consumption to production. Such sector rotation sits at the core of what is a necessary adjustment to help narrow South Africa's large current account deficit and [in doing so] lay the foundation for faster, more sustainable growth in the future,” RMB said.

Confidence of building contractors increased by two index points to 49 in the first quarter of the year. A year ago, the index stood at a low 30.

“Although the mood has improved with the index now at its highest level since the 2008/9 recession, the building sector is still battling. In fact, in the four decades the BER has been covering this sector, confidence has never taken this long to improve. Work remains relatively scarce and the rebound in the residential sector ran into renewed headwinds in the first quarter,” RMB said.

Further, sentiment among manufacturers improved by five index points to 41 in the latest BCI.

RMB said while the majority of the survey’s respondents remained downbeat, the mood had been steadily improving over the past year.

“The spirits of exporters in particular have been lifted by the combination of improving global growth and the weaker currency. The latter has also helped reduce competition from importers of products which have become more expensive relative to less costly local manufactured goods,” RMB explained.