Bleak outlook for S.Africa's business confidence - CNBC Africa

Bleak outlook for S.Africa's business confidence

Financial

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Manufacturing confidence dropped from 41 index points to 25 index points. PHOTO: ABN Graphics

The BCI has hovered around the 40 index point level for about a year now, indicating that quite a number of companies continue to be unhappy with prevailing business conditions.

A number of events could have influenced sentiment in the second quarter. Some of these include the platinum sector strike, which is now in its fifth month, other smaller strikes, as well as the threat of industrial action in the metals and engineering sector.

(READ MORE: S.Africa’s Business Confidence Index drops to 88.9 in May)

According to the index, confidence could have been impacted by spill-over effects from the country-wide power outage in March and the national election, and subsequent new cabinet appointments, in May as well.

The decline in manufacturing confidence was especially noteworthy with the deterioration in sentiment partly attributed to the unrest in the platinum sector.

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“If we look at the second quarter, particularly the survey results, confidence among manufacturers dropped dramatically – we went from 41 index points to 25 index points. The last time we were at this kind of level was way back in 2009,” RMB chief economist, Etienne Le Roux told CNBC Africa.

“A key problem for many manufacturers is the platinum sector strike, there’s no doubt about that. If you think about manufacturers, specifically supplying the platinum mining sector with machinery, chemicals, piping, they’re clearly not going to be happy.”

Lower sales volumes and a related deterioration in profitability also played a role in the manufacturing confidence decline.

(WATCH VIDEO: S.Africa's weak manufacturing sector drags sub-Saharan growth)

“We saw sales volumes dropping for manufacturers that are not directly linked to the platinum sector. To some extent that’s easy to explain because domestic demand is relatively weak,” Le Roux said.  

“What was also concerning and puzzling at the same time is that in the second quarter we saw export volumes dropping quite significantly.”

Retail confidence increased from 39 index points to 49 index points in the second quarter and confidence among new vehicle dealers bounced back to 43 index points.

“If the services sector, coupled with agriculture and construction, more or less maintain their first quarter growth momentum, a return to more normal conditions in the platinum industry would give the economy a kicker in the second half of the year,” said Le Roux. 

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