After falling from 55 index points in the first quarter of the year to 39 in the third quarter, the RMB/BER Business Confidence Index (BCI) eased by one point to 38 in the fourth quarter. Sentiment improved notably in the retail and wholesale trade sectors, deteriorated further in new motor trade and remained largely unchanged in manufacturing and building.
Figure 1: RMB/BER business confidence
Source: BER, SARB (Shaded areas represent economic downswings)
Following a sharp drop in the first half of the year, retail confidence has recovered strongly with the fourth quarter in particular showing a marked increase, jumping by eight points to 56. Sentiment improved noticeably for retailers of non-durable and durable goods while it deteriorated slightly, off a high base, for retailers of semi-durable goods. Sales volumes as well as order books increased in most cases as did selling prices.
Wholesale confidence rose from 31 index points in the third quarter to 38 in the fourth quarter. Similar to most retailers, the mood of wholesalers selling consumer goods perked up as sales volumes as well as prices rose.
Largely offsetting the better mood of retailers and wholesalers was a further decline in confidence of new vehicle dealers. From a high of 84 index points in the first quarter, it fell to 58 in the third quarter and 44 in the fourth quarter. Deteriorating confidence, despite still strong, albeit slower growth in units sold, implies a drop in profitability. Volume growth remains decent but it could be that a growing share of new vehicle sales represents cheaper models with thinner margins.
Confidence in the remaining two sectors making up the RMB/BER BCI remained largely unchanged during the fourth quarter. In both the manufacturing and building sectors, confidence fell by one point to 35 and 19 respectively. While confidence levels of building contractors were largely consistent with slowly improving, but still subdued real activity in residential (and non-residential) markets, flat confidence in the manufacturing sector hides much improved underlying business conditions.
A number of factors might explain this disconnect. It could be the fourth quarter resurgence in production volumes merely reflects the catch up from weak strike-affected levels the quarter before. Having experienced difficult times for so long, respondents may therefore not trust the rebound. A similar conclusion is possible given the recovery in export volumes. Some might feel it is only a matter of time before growing troubles in advanced economies will hit demand and so stop the fourth quarter rebound in its track. It could also be that certain exporters doubt the sustainability of the rand’s weakness and the improvement in competitiveness it has brought about. The worse conditions in the advanced economies become, the bigger the risk of aggressive quantitative easing – a development that most likely will boost the currency.
Bottom line
Against the backdrop of tremendous volatility in financial markets, troubling developments in the global economy, especially in Europe, and political uncertainties domestically, it is surprising business confidence barely changed in the fourth quarter. Furthermore, underlying activity in all of the sectors except for the building industry either improved strongly or remained resilient. The fourth quarter RMB/BER survey results imply slightly faster GDP growth than the 2% annualised pace anticipated in the third quarter. For the year as a whole, the economy still looks good for growth of around 3% – the same figure we more or less expect for 2012.