In its first noticeable rise in more than a year, the Rand Merchant Bank (RMB) and Bureau for Economic Research (BER) Business Confidence Index (BCI) increased by five points to 46 in the third quarter of the year, indicating that just shy of 50% of respondents felt that prevailing business conditions were satisfactory.

RMB said the third-quarter increase in the BCI pointed to a further improvement in economic growth, with the second half of the year expected to be better than the first.

“This is encouraging as only a short period ago some commentators were still worried about a possible recession,” it noted.

The bank added that the rise in the RMB/BER BCI mirrored an improvement in sentiment in all the sectors making up the headline index, except for the new vehicle trade.

However, banking group Investec was less optimistic, pointing out that 54% of respondents had found business conditions unsatisfactory, as the country’s weak gross domestic product outlook kept confidence muted.

“When economic growth is not expected to rise above potential, firms tend to have lower confidence and invest less, compared to when economic growth is expected to run above the capacity of the economy to produce goods and services,” Investec said, adding that policy uncertainty was also negatively impacting on business confidence.

BCI RESULTS
RMB pointed out that, while the end of labour unrest in a number of sectors would lead to a bounce-back in economic activity, the survey results also showed that various other developments underpinned economic growth, such as a recovery in the residential building sector.

During the third quarter, the confidence of building contractors increased from 45 to 53, driven by a strong performance from the residential building sector, bringing this index above the 50-point neutral mark for the first time since the 2008 recession.

Further, manufacturing confidence increased marginally from 25 to 28 index points, as sales and production recovered only partially from the poor performance in the strike-affected second quarter.

However, RMB said the small improvement in underlying manufacturing activity is indicative of more to come.

“For example, the strike in the platinum sector might be over, but manufacturers supplying into this sector will only see the real benefit of increased output when platinum miners return to full operation in the fourth quarter and beyond.

“Furthermore, the strike in the metals and engineering sector also only ended in July, which falls in the third quarter,” RMB explained.

Meanwhile, after increasing from 39 to 49 during the second quarter, retailers’ confidence rose further to 60 index points during the third quarter.

RMB stated that the improvement in sentiment was notable as sales volumes did not increase across all categories — clothing and hardware rebounded strongly, while food and furniture sales volumes deteriorated.

“Although the most recent improvement in retailers' confidence is unlikely to be sustained, those selling to high income households appear comparatively better placed than those with low income earners as clients,” the bank said.

Further, the confidence of wholesalers also jumped from 44 to 59 index points, with sales having improved all round.

RMB noted that sales of nonconsumer goods, such as machinery, chemicals and building materials, benefitted greatly from the end of the strikes in the mining and manufacturing sectors, as well as from the return to higher activity levels in the residential building sector, while wholesalers of certain consumer goods also saw a notable improvement in business conditions.

Meanwhile, during the third quarter, further declines in sales dampened new vehicle dealers’ business mood.

At 28, confidence fell to the same low level as in the first quarter, rendering the second quarter’s jump to 43 a temporary blip, RMB highlighted. 

“We doubt confidence levels among new vehicle dealers can drop much further,” RMB said.

In contrast to new vehicles, the sales of used vehicles continued to march steadily upwards.