RMB/BER BCI sees another increase in Q3

The RMB/BER Business Confidence Index rose by another three points to reach 38 in the third quarter of 2024, marking the first business sentiment survey in South Africa since the formation of the Government of National Unity (GNU). This increase reflects cautious optimism about improving business conditions in the country, as highlighted by Isaah Mhlanga, Chief Economist at RMB, during a recent CNBC Africa interview. Isaah Mhlanga pointed out that although the current level of 38 on the index indicates that just under 4 out of 10 business respondents are satisfied with prevailing business conditions, it is still at very low levels of confidence needed to drive fixed investments. However, he highlighted three key takeaways from the latest survey. Firstly, despite several risks unwinding, including political uncertainty and a strong dollar, weak rand scenario, there was only a modest three-point improvement in confidence from the second quarter. This improvement falls below the long-term average of 44. Secondly, there was a notable improvement in the retail sector and new vehicle dealers, both consumer-facing industries. This uptick was driven by anticipation of interest rate cuts amid moderating inflation, particularly beneficial for these sectors. On the other hand, confidence declined in wholesalers and building contractors, with the latter witnessing a normalization to pre-existing levels. Moreover, Mhlanga discussed the potential impact of upcoming interest rate cuts on consumer confidence and spending behavior. While the Business Confidence Index does not directly measure consumer confidence, improving business sentiment in sectors like retail and new vehicle dealers would likely follow an uplift in consumer confidence. He anticipated that access to pension funds through the two-port system, aimed at repairing consumer balance sheets, could lead to increased retail spending and improved credit scores for consumers. In discussing consumer behavior, Mhlanga suggested that a portion of the pension funds accessed might be allocated towards reducing debt, ultimately improving credit records. He noted that while it is challenging to predict the exact proportion of funds allocated towards spending and debt reduction, a balanced approach could lead to positive outcomes for retailers and new vehicle dealers. Looking ahead, Mhlanga expressed optimism for further improvement in business confidence, citing the unwinding of previous risk factors, positive responses in financial markets, moderated inflation, and a supportive global environment. He highlighted the potential for a positive capital flow perspective in emerging markets, contributing to a boost in domestic confidence. Overall, the current increase in the Business Confidence Index reflects a cautious yet optimistic outlook for businesses in South Africa, with expectations of continued improvement in the coming quarters. While challenges remain, including the need for sustained consumer spending and debt management, the groundwork has been set for a more positive business environment in the near future.