After falling from 40 to 34 in the third quarter, the RMB/BER Business Confidence Index (BCI) deteriorated marginally further to 31 in the last quarter of 2018.
Figure 1: RMB/BER Business Confidence
Source: BER, SARB (Shaded areas represent economic downswings)
In addition to the fourth quarter results, this release incorporates the outcome of some data revisions and survey improvements. On occasion, the BER updates, among other things, its surveys’ sector weights to reflect structural changes in the economy. To maintain a consistent time series, historical data also get revised. In the main, revisions have been small and historical trends have broadly stayed the same. A brief note at the end of this release gives more detail about the methodology and changes which have occurred.
The fourth quarter survey was conducted between 31 October and 19 November. The fieldwork was therefore completed before the 25-basis point interest rate hike of last week, the cabinet reshuffle and “Black Friday” promotion sales. The survey covered 1 700 business people in the five cyclically-most-sensitive sectors of the economy i.e. building, manufacturing, retail, wholesale and new vehicle trade.
- In terms of the five sectors making up the RMB/BER BCI, sentiment deteriorated in two (motor trade and building) and increased in three (manufacturing, retail and wholesale trade) during the fourth quarter.
- Confidence among new vehicle dealers declined by the largest margin (22 points), and at 15 it is the lowest of all the sectors surveyed. The drop in confidence can almost entirely be attributed to an unexpected (and considerable) further deterioration in sales volumes.
- After rising from 37 to 44 in the third quarter, building contractor confidence fell back to 32 as previous expectations of improved activity in especially the residential sector failed to materialise. The fourth quarter’s reading of lower confidence is consistent with continued weakness in both residential and non-residential building activity.
- Of all the sectors, retail trade registered the biggest improvement in sentiment, with its BCI rebounding from 23 in the third quarter, to a still low 33 in the fourth quarter. Even before “Black Friday”, sales volumes improved a little with retailers of durable goods (such as furniture, appliances and electronic goods) continuing to do better than most other retailers, especially those selling new cars which have seen volumes plunge.
- Manufacturing confidence increased slightly from 26 in the third quarter to 30 during the survey quarter. While domestic as well as export sales volumes showed some signs of life, improvements were moderate. Similarly, production output only increased a bit.
- Somewhat better sales of both consumer and non-consumer goods boosted wholesale confidence from 40 to 44 in the fourth quarter.
Even though improvements have been modest, it’s nonetheless encouraging to see confidence having risen in three out of the five sectors surveyed. In fact, if it wasn’t for the unusually large drop in new vehicle dealer confidence, the RMB/BER BCI would have risen for the first time in almost a year. Yet, concerns continue to linger; in aggregate, seven out of every 10 respondents remain unhappy with prevailing business conditions, while confidence continues to track below the neutral-50 mark in all the sectors.
“While President Ramaphosa’s refreshing new focus on public-private-sector partnerships is welcome, the reality is, a multitude of political and policy issues (chief amongst which is the uncertainty around the government’s land reform plans), continue to weigh down on confidence. Unless these are resolved in a more speedily and concrete fashion, private sector fixed investment, and by implication, economic growth will remain disappointingly low. Time is running out as global headwinds are mounting and domestically inflation as well as policy interest rates have bottomed” said Ettienne Le Roux, chief economist at RMB.
More information on the BCI’s revision
Usually, surveys make use of weights to provide for the fact that not all units of the population universe are quizzed. All the BER’s survey respondents are allocated sector and firm size weights to account for their main activity type and turnover respectively. Every few years, the BER updates the sector weights to provide for changes in the composition of activity. This time, the BER also reduced the number of firm size weight categories from nine to four to agree with the classification into micro, small, medium and large firms. The updated sector weights and the new four-category firm size weights were applied to the original individual responses (the so-called microdata) to recalculate all the historical time series going back to 1992. For more information, please see the note “Business confidence changes 18Q4” and download the revised historical BCI data at www.ber.ac.za