Business confidence takes a dive

Business confidence was subdued in June due to adverse economic development, according to the South African Chamber of Commerce and Industry (Sacci).

Releasing the Business Confidence Index (BCI) on Tuesday, Sacci said the index remained subdued in June with it lingering below 90 index points.

“The index moved marginally to 89.7 in June from 88.9 in May 2014. The June 2014 BCI is 0.5 index points up on May 2013. The average for the BCI for first half of 2014 was 91.1 compared to 91.7 for the first half of 2013,” noted Sacci.

According to Sacci, the negative annual changes in the BCI grew as 11 of the 13 BCI sub indices were in negative territory in June 2014 compared to eight in May 2014.

“Only share prices and municipal services showed positive levels compared to last year. Of the six financial sub-indices, only one (the all-share price index of the JSE) made a positive contribution to the BCI relative to June 2013. Although real economic activity has been of concern for its impact on business confidence, the monetary/financial situation had a notable negative impact on the business mood in June,” explained Sacci.

In June, inflation [Consumer Price Index] was at its highest since July 2009 when it reached 6.7% in June 2014 compared to 6.6% in June 2014.

The rand depreciated by 10.5% year on year against a weighted British pound, the US dollar and the euro, while the volume of borrowing by households has declined by 1.3% year-on-year.

A less supportive financial climate for business confidence was prevalent in June.

Additionally, Sacci expressed concern that the broader unintended consequences associated with strike activity in certain areas of the economy will have a lasting impact not only on business confidence but on investor confidence and financial stability.

Standard and Poor’s (S&P) downgraded South Africa on 13 June 2014, mainly due to impact of the platinum strike on the economy and cautionary notices remain in place in respect of the metal workers strike.

In a statement last month, National Treasury said government has acknowledged the negative impact that the strike has had not only on mining output, but also on industries that have linkages to the sector as suppliers of goods and services and those that process raw materials supplied by the affected mines.

“Sacci hopes that the current round of labour protest activity will be of short duration so as limit the adverse impact on an already fragile economy.”