Strengthening consumer demand and an absence of load shedding provided a boost to business confidence in the fourth quarter of 2024, data from RMB and the Bureau for Economic Research (BER) showed yesterday, highlighting that rising productivity provided additional support.
This saw the RMB/BER Business Confidence Index for the fourth quarter 2024 rising to 45 index points, up from 38 in the third quarter.
However, though confidence is improving, it is still depressed below the 50-mark point which separates expansion from contraction as “just under half of the respondents are satisfied with prevailing business conditions”.
There has been improving business sentiment after the May 29 elections that ushered in a Government of National Unity (GNU).
“The slow, but steady increase in business confidence in recent quarters is an encouraging development. The continued absence of load-shedding and political stability following the May 29 election has helped with the recovery, while an improvement in consumer demand seems to have provided a further boost to sentiment in the fourth quarter,” said RMB and BER.
Improved consumer demand had largely benefited retailers and wholesalers while there was “sufficient improvement” in underlying business conditions and activity for manufacturers and building contractors.
In contrast though, the more interest-rate-sensitive new vehicle dealers continued to remain under pressure. Following a big increase in new vehicle dealers’ confidence in the third quarter, from 10 points to 27 points, confidence slipped to 23 points in the fourth quarter.
“The further improvement in business confidence is very welcome and is testament to the impact of the gradual improvement on the reform front,” said Isaah Mhlanga, chief economist at RMB.
“However, even though forward-looking indicators remain positive, more needs to be done to ensure that this recovery in confidence can be sustained and improved upon in coming quarters in order to eventually translate into higher investment, economic growth and job creation.”
With business and consumer confidence playing a key role in economic performance, the current uptick has been interpreted as supportive for improved activity and investment over the short-term to medium outlook.
However, Mhlanga cautioned that South Africa was “not out of the woods” yet.
“Respondents expressed concerns about red tape, high administrative costs and crime and corruption, especially flagging the construction mafia in the building sector,” he said.
“Like in the previous quarters, the logistical constraint remains severe, with a particular growing concern about the water crisis in Gauteng.”
Economists have advised that swift, committed, and continued efforts to implement the structural reforms, particularly in the logistics and water sectors, among others, are required to lift the constraints hindering growth for South Africa’s economy.
Addressing these lingering constraints would also “go a long way in supporting a continued recovery in confidence, investment, economic growth, and much-needed job” creation.
Investec chief economist Annabel Bishop said manufacturers were still experiencing depressed sentiment, even if less so, as their businesses were negatively affected by the blockages at the ports, even if these have been lessened somewhat.
Bishop said weak global demand has also had an impact on exports.
“Businesses are cautiously optimistic about the future post the election and formation of the GNU, as evidenced by the gradual improvement in the forward looking component, from -25 in Q4.23 to the latest reading,” Bishop said.
“Expectations of further interest rate cuts also likely improved the forward-looking outlook, along with the view that load shedding is largely over for the year ahead. The business climate saw its first positive reading of 2 in Q4.24 in a number of years.
“The jump in business confidence itself, the reading on the current quarter, also displays likely improved sentient from consumers, which would have positively affected the rising components.”
BUSINESS REPORT