Business confidence sinks in the first quarter

After a small increase in the fourth quarter, the RMB/BER Business Confidence Index (BCI) slumped by eight points to 18 in the first quarter of 2020 – a 21-year low. More than eight out of every 10 respondents therefore perceive prevailing business conditions as unsatisfactory. This outcome reflects the responses of 1 800 executives surveyed between 12 February and 2 March.

Figure 1: RMB/BER Business Confidence








Source: BER, SARB (Shaded areas represent economic downswings)   


The first quarter’s drop in the RMB/BER BCI is due to a turnaround in confidence of the same sectors that showed improvements in the fourth quarter namely building, manufacturing and retail trade. Sentiment among wholesalers and new vehicle dealers effectively remained unchanged at heavily depressed levels.

  • Building confidence plummeted by 16 points to a 22-year low of 15 i.e. after residential building contractors joined their colleagues in non-residential building for an all-round deterioration in sentiment in the first quarter.
  • Manufacturing confidence fell from 24 to 17, a meagre one point above the third quarter’s low. Plunging domestic and export sales forced manufacturers to slash production further.
  • Sales volumes of food, hardware and other consumer durables remained dismal in the first quarter. Clothing sales volumes recovered somewhat, but this came about mainly through discounting, which hurt retailers’ gross margins. Unsurprisingly,retail confidence reversed all the fourth-quarter’s gains, falling from 30 to 18.
  • The BCI of wholesalers deteriorated by a further 3 points to 25, while in the case ofnew vehicle dealers it also continued to worsen, falling to 16, both on the back of ongoing poor sales.

Although persistent demand weakness is the main reason for respondents’ depressed state of mind, other factors that also played a role were the many instances of consecutive days of load shedding since December, news around further bailouts of struggling state-owned enterprises (specifically SAA), the alarming deterioration in the government’s finances spelled out in the National Budget, as well as the latest outbreak and spreading of the coronavirus around the globe. January’s 25 basis point interest rate cut was a small positive, but hardly enough in itself to compensate for the confidence-sapping impact of the prevailing negative developments.

Bottom line

In retrospect, our expectation at the time that the fourth quarter improvement in the RMB/BER BCI “is unlikely to mark the beginning of a sustained upward trend” was correct. What’s more, since the survey was completed in early March, things have gone from bad to worse, particularly on the global front. Indeed, for a small open economy already in recession, the timing of the prospective sharp COVID-19-induced global slowdown could not have been worse. Exports will be hit, tourism flows will be affected, and supply-chain disruptions will be widely felt. All the while when South Africa must continue dealing with the growth-dampening effects associated with the corrective fiscal measures necessary to help stabilise public sector finances. “Against this backdrop, the government’s seemingly inability to fast track much needed growth-enhancing reforms is frustrating, to say the least”, said Ettienne le Roux, RMB chief economist.

In short, nothing here spells any good news for the RMB/BER BCI which, in all likelihood, will continue to trend lower in the period ahead, with obvious negative consequences for future trends in private sector fixed investment.