Business Fielding Brittle Conditions
SACCI PRESS RELEASE
EMBARGO: 11:30 on Tuesday, 7 June 2016
SACCI today released the SACCI Business Confidence Index (BCI) for May 2016 at the Offices in Rosebank, Johannesburg.
The SACCI Business Confidence Index (BCI) suffered a setback as the gradual recovery to April 2016 from a historic low level of 79.6 in December 2015 was undone in May 2016. The BCI that came in at 79.3 in May 2016 was 7.6 index points below the May 2015 level and declined by 3.2 index points on April 2016. Though the BCI was widening the gap on 80 up to April, the advances were brittle in the wake of a delicate economic situation.
Setbacks in the real business environment were evident in May 2016 with four of the seven sub-indices declining on April 2016 while the financial climate deteriorated even more as there were no positive month-on-month movements in May 2016. The annual BCI comparison suggests a tighter business climate in May 2016 than a year ago with financial circumstances and the real economy being worse off.
The month-on-month (m/m) changes of the sub-indices of the SACCI BCI had fewer positive movements in May 2016 than in April 2016. The largest positive monthly contributions to the BCI came from building plans approved and merchandise export volumes. Seasonally adjusted merchandise import volumes had the largest negative m/m effect in May 2016 followed by real retail sales and a weaker weighted rand exchange rate against the US Dollar, Euro and the British Pound.
The largest negative year-on-year contribution to the BCI in May 2016 came from the rand exchange rate followed by new vehicle sales and all-share prices on the JSE. The only positive year-on-year impact on the BCI in May came from municipal services.
The main matters that could seriously affect the immediate South African economic conditions and the business climate are the announcements by Standard and Poor’s and Fitch regarding South Africa’s sovereign credit rating. The Treasury and the Minister of Finance are positive about convincing investors that South Africa is addressing a possible public finance overhang. Much has been done to create certainty, policy co-ordination, fiscal adjustment and prudency in public finance.
Although a credit rating assesses a country’s debt service and repayment performance indicators – economic policy and the instruments to achieve it and the political environment in which public finance operates are of core importance. South Africa avoided a downgrade by Standard and Poor’s, but government will have to give serious attention to measures that promote the production side of the economy – real sustainable economic growth.
The sovereign credit rating should serve to emphasise the need for revisiting the economic policy narrative to restore business and investor confidence.
For a full background to this month’s SACCI BCI see the Economic Commentary in the BCI report on www.sacci.org.za.