Business confidence rises, but interest rates still weigh heavily

Business confidence edged higher in the third quarter of 2023, but interest rate-sensitive sectors continue to struggle.

After falling to 27 in Q2, the RMB/BER Business Confidence Index (BCI) regained some ground and registered at 33 in Q3.

Although higher, sentiment is still fragile. The current index level suggests that two-thirds of respondents are dissatisfied with prevailing business conditions, the Bureau for Economic Research (BER) said.

The challenges posed by relatively high interest rates, the resultant strain on consumers, and social unrest meant business activity remained constrained.

However, encouragingly, the slight reprieve from load-shedding in Q3 supported some firms, especially in manufacturing.

Interest rate-sensitive sectors are suffering, as reflected by downbeat sales among durable goods retailers, new vehicle dealers, and, to a lesser extent, wholesalers of consumer goods.

Manufacturing production rose within the reduced load-shedding environment.

Core consumer inflation (headline inflation excluding food and energy) is set to remain on an easing trajectory in the third quarter of 2023.

However, firms are not yet passing on all of the lower producer prices to consumers.

From the comments, it is clear that the Western Cape taxi strike weighed on activity in the region.

Lastly, activity growth in the building sector is looking more sustained.

“The headline result of the 2023Q3 RMB/BER Business Confidence Index suggests that the economic malaise affecting South Africa in preceding quarters continued into this one,” said RMB chief economist and head of research Isaah Mhlanga.

“On deeper inspection, however, there are different forces at play with manufacturing production and building activity improving, but interest rate-sensitive sectors that are distressed.”

“Looking ahead, it will become increasingly important to also consider the impact of unrest, such as recently seen in the Western Cape, on South Africa’s economic fortunes in the run-up to the national elections next year.”