Business confidence rose sharply in the first quarter of 2010, according to a survey released yesterday.
Rand Merchant Bank and the Bureau of Economic Research said their Business Confidence Index (BCI) jumped by 15 points to a level of 43 during the first quarter of 2010.
This was the single biggest increase between two consecutive quarters in 16 years, the survey found. Also, at 43 the BCI was back to the same level which prevailed before the global financial market crisis erupted around 18 months ago.
"The first quarter improvement in business confidence is no doubt impressive," Rand Merchant Bank economist Ettienne le Roux said. "Still the increase needs to be put in context."
Confidence remained in "net negative" territory - below 50 - and although the mood improved across all five of the sectors surveyed, increases were only particularly large in the case of wholesale and new vehicle trade, where index levels surged by 23 and 31 points respectively.
"Whereas confidence is now at the neutral level of 50 or above in the internal trade sectors, the mood remains depressed in the case of building and manufacturing," Le Roux said.
New vehicle dealer confidence jumped from an index level of 29 in the fourth quarter of 2009 to 60 in the first quarter of 2010.
"The surge in confidence came about as sales surpassed even earlier optimistic expectations," he said. "Wholesaler confidence increased from 27 to 50... but the significance of this result is undermined by the fact that wholesale trade is known for displaying big swings in confidence."
'Imminent upturn expected'
According to Le Roux, the upsurge in confidence seemed mainly to have been based on merchants' expectations of an imminent upturn rather than the actual improvement in current conditions.
"For instance, sales volumes continued to contract in the first quarter, albeit at a slower pace than before. Retailer confidence increased from 41 to 51."
Driving the increase was a notable improvement in the sales of non-essential items, such as semi-durable and durable goods, Le Roux said, adding that low interest rates, a degree of stability returning to the labour market, as well as greater affordability, could all have played a role in boosting sales.
"That being said, sales of non-durable goods remained poor."
The RMB/BER BCI is made up of the percentage of respondents rating prevailing business conditions as satisfactory in the manufacturing, building, retail trade, wholesale trade and new vehicle trade sectors.
Following improving production and sales, manufacturer confidence rose by nine index points to 28, the survey found.
"But once again a qualification is required," Le Roux said.
Apart from vehicle and basic metal manufacturers, conditions remained far from ideal in most other sub-sectors.
"In aggregate, production and sales were still down compared to year ago levels and thus explains why confidence remained low in comparison to the internal trade sectors."
He said although building activity contracted at a slower pace, conditions had remained quite tough.
"The mood among building contractors improved only marginally to an index level of 26 from 23 in the previous quarter."
He said the 15 point surge in the RMB/BER BCI was heartening.
"Together with other leading indicators it provides further evidence that the domestic economy has entered an upward phase of the business cycle."
Realism still required
Still some realism was required; Le Roux said firstly the index level had remained below 50, which implied that the majority of respondents were still pessimistic in their outlook.
Secondly, the headline increase in large part was driven by a surge in the confidence of wholesalers, a sector which by nature delivered some volatile results from one quarter to the next.
Thirdly, being narrowly based, the increase in the BCI concealed tough conditions on the ground in most sectors.
"Indeed, conditions remain difficult with activity levels still lower compared to a year ago in all of the sectors surveyed except for the new vehicle trade, durable goods retail trade and the vehicle and basic metals manufacturing sectors."
Although there was no doubt that the economy was recovering, Le Roux said it was not yet in a broadly based upswing. The improvement remained patchy and heavily leveraged towards the health of global demand.
Gross domestic product growth of more than three percent was possible this year and next.
However, the longevity of the upswing hinged on higher levels of consumer and private investment spending ultimately taking over from what should be a strong rebound in exports and inventories in 2010, as production levels catch up with demand, Le Roux said.
Sapa
