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After falling to a record low at the height of the Covid-19-induced lockdown in the second quarter, business confidence began to return to normal in the third quarter of 2020.
Rand Merchant Bank’s (RMB) Business Confidence Index (BCI), compiled by the Bureau of Economic Research, jumped to 40 points in the fourth quarter from 24 points in the third quarter.
While the easing of lockdown restrictions in recent months has led to a resurgence in activity, the pace of growth in 2021 and beyond remains highly uncertain, said Ettienne Le Roux, chief economist at RMB.
“While the rise in business confidence is encouraging, it just means an economy that is out of intensive care and not intensive care,” he said.
“In fact, while the easing of lockdown restrictions in recent months has prompted a resurgence in activity, the pace of growth in 2021 and beyond remains highly uncertain.”
Le Roux said that a lasting recovery in the world economy, especially as the vaccine is launched, and continued high prices and strong demand for South Africa’s mineral exports, as well as the resumption of international travel, will surely bolster the local economy.
“However, many risks abound. For example, the sharp increase in confidence among consumer-oriented sectors could easily become temporary if the “trick” coming from stifled demand wears off.
Similarly, poorer-than-expected Black Friday and holiday sales could also affect sentiment, while uncertainties associated with expiring Covid-19 special income support measures is another potential sentiment buffer. .
“In addition, after significant layoffs in the second quarter, the job outlook remains bleak.”
Improving confidence
The BCI showed that confidence among retailers and wholesalers increased significantly during the quarter, recording a better improvement than during the seasonal sales periods of Black Friday and holidays.
The new vehicle sector and wholesale trade registered the largest increases in the quarter.
Confidence among retailers and wholesalers jumped to 50 and 59 respectively, making them the first sectors in more than two years to see confidence return to net positive territory.
Retail confidence soared from 36 to 50 in the fourth quarter, an increase that is larger than the seasonal improvement generally linked to Black Friday and holiday sales.
Sales volumes for food, groceries, electronics, furniture, and building materials increased dramatically, while that of clothing remained under pressure.
Accumulated demand, 300 basis points of interest rate cuts, substitution of spending on services such as restaurants, entertainment and travel, for expenses on prepared meals, office equipment and DIY products related to work from home, resulting savings from the lowest Gasoline spending by those who work from home, as well as Covid-19-related add-ons in social grants, new cash grants for the unemployed and FIU payments, all supported retail sales in the quarter.
Wholesale confidence soared from 33 to 59, a six-year high, mainly due to a sharp increase in spending on consumer goods.
New vehicle dealer confidence jumped from 16 to 41 as sales continued to strengthen in the fourth quarter.
Manufacturing confidence rose from 22 to 31 due to markedly better domestic sales and increased exports.
Confidence building improved slightly (from 14 to 21), as both residential and non-residential construction activity remained weak.
The greater appeal of buying an existing home rather than building a new one, the prevailing oversupply of business and office space, and delays in local authorities’ processing of backlogs and permits, all reduced activity .
In contrast, residential subcontractors continued to benefit from ongoing renovations as people spent more time working from home.
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