SACCI Business Confidence Index
SOUTH AFRICAN CHAMBER OF COMMERCE AND INDUSTRY August 2017
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SACCI Business Confidence Index – August 2017
Content: The
SACCI
Business
Confidence
Index (BCI) This Month’s BCI Results Impact
of
Business
Climate
Indicators Economic Commentary General Economic Indicators
Because of information lags and changes in expectations, the dynamics of the business mood, at times, may be at variance with the economic environment. As a result, always read the BCI with other economic data and the accompanying economic commentary. For notes on the BCI, see the SACCI website at www.sacci.org.za.
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SACCI Business Confidence Index – August 2017
The SACCI Business Confidence Index 2015=100 Month January February March April May June July August Septemb er October Novembe r Decembe r Average
2010
2011
2012
2013
2014
2015
2016
2017
110.8 113.2 113.5 114.8 111.8 115.7 115.0 119.5
119.4 118.0 120.6 118.7 117.2 118.5 114.6 114.2
112.4 115.2 110.8 109.2 107.4 109.9 105.2 110.0
108.8 107.7 104.7 106.9 104.7 104.4 105.0 104.8
104.5 106.4 107.3 107.2 102.9 103.8 101.8 103.0
103.4 107.4 103.2 104.1 100.6 97.9 101.8 97.6
97.7 95.5 93.8 94.9 93.2 94.9 95.3
119.8
113.9
106.2
105.8
103.3
94.5
92.6 92.7 94.0 95.5 91.8 95.1 96.0 92.9 90.3
117.2
112.9
106.5
105.5
102.8
102.3
118.7
112.8
106.2
105.1
105.1
95.1
119.5
114.7
107.7
106.4
102.2
92.2
115.8
116.3
108.9
105.8
104.2
100.0
2
93.0 93.9 93.8
93.5
89.6
SACCI Business Confidence Index – August 2017
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SACCI Business Confidence Index – August 2017
This Month’s BCI Results In August 2017, the SACCI Business Confidence Index declined to its lowest level thus far in 2017 and the lowest level since mid-1980s. The BCI decreased by 5.7 index points between July 2017 (95.3) and the 89.6 measured in August 2017. This is the largest month-on-month decrease of the BCI since November 2015. The BCI was 3.3 index points lower than a year ago in August 2016. The business climate remained sensitive to political posturing and an uncertain direction for the economy. Doubt about the effect of proposed economic approaches is debilitating to business confidence and especially investor confidence. Views on the way forward may be popular but short of convincing and in support of a vibrant and prosperous economy. Although these views fuel optimism amongst the broader populous, the economy will not be able to fulfil expectations in a mired growth scenario. The current business climate remains restrained although the technical definition for the recession may not apply. On a month-on-month (m/m) basis, four sub-indices of the BCI made positive contributions to the business climate between July and August 2017. Five sub-indices had a negative impact and four had a neutral month-on-month effect on the business climate. The negative m/m sub-indices notably overtook the positive effects on the BCI and drove the index down in August 2017. Three positive sub-indices were from the financial environment while one sub-index from real activity had a positive m/m impact on business confidence in August 2017. Lower merchandise import and export volumes mainly caused the sharp monthly decline of the BCI in August 2017. Lower consumer inflation and new vehicle sales made only moderate positive monthly contributions to the BCI in August. The year-on-year (y/y) decrease of 3.3 points in August 2017 compared to August 2016 was the net result of six of the thirteen sub-indices that deteriorated y/y, five that were positive and two that were unchanged y/y. Considerable lower merchandise import volumes and default higher real financing costs (much lower inflation with unchanged nominal interest rates) were largely responsible for the negative y/y effect on the BCI. Lower consumer inflation, improved new vehicle sales, and the stronger weighted rand exchange rate prevented a larger y/y deterioration in the business climate and made positive y/y contributions to the BCI. Unchanged y/y real retail sales and an unchanged y/y appetite for borrowing had no effect on the BCI between August 2016 and August 2017.
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SACCI Business Confidence Index – August 2017
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SACCI Business Confidence Index – August 2017
Impact of BCI Sub-indices on the BCI
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SACCI Business Confidence Index – August 2017
Economic Commentary Contradiction in Terms? Global economic growth was adjusted upward by the IMF’s Outlook Update in July 2017 and was forecast to grow by 3.5% in 2017 and 3.6% in 2018. Country contributions however differ where United States growth projections are lower by 0.2 and 0.4 percentage points from the April 2017 forecasts; higher growth for Japan (1.3% and 0.6%), and particularly higher growth in the euro area (1.9% and 1.7%). China’s growth was also revised upwards to 7.2% and 7.7%. Economic growth is nevertheless still too low in certain advanced and commodity-exporting emerging and developing economies. While political risk receded, the upward economic cycle in Europe is expected to be stronger and prolonged. However, policy hesitation could trigger financial market adjustments, which could dampen growth and confidence. Strong credit growth in China, monetary policy normalization in particularly the United States, inward narrow-minded trade policies, and geopolitical risks could be significant developments. Reforms to boost potential output in emerging and developing economies are essential and subdued GDP growth makes inclusive growth more important across income categories. Importantly, commodity exporters will have to adjust to less fiscal revenues and adhere to prudent public finance management and administration. Lately financial markets in the US rallied after US economic growth was revised up by 0.4 percentage points. Robust household spending and business investment were large contributors to the accelerating pace of growth. Employment numbers were also strong as job reports are likely to confirm strong employment growth. The rise in Chinese manufacturing activity added to the positive outlook. Given the positive sentiment and outlook prevailing in the global context, South Africa’s economic performance is sub-optimal and the country is not positioned to utilize this opportunity and enhance economic growth and foreign investment. Additionally, various domestic public finance matters have emerged that are not only limited to state owned enterprises, but have spilled over to revenue collection and the government’s budget deficit that has widened. These developments indicate that the country could face difficulty with upcoming credit ratings.
Balance of Payment (BoP) Developments South Africa's trade surplus, excluding trade with the BLNS-countries, improved to 2.3 billion rand in July 2017 from a revised 0.6 billion rand deficit in June 2017. Merchandise exports fell 5.4% to 83.1 billion rand on a month-on-month basis in July, while merchandise imports were 7
SACCI Business Confidence Index – August 2017
down 8.6 % to 80.8 billion rand. The cumulative trade balance improved markedly from 64.7 billion rand for the period January to July 2016 to 16.1 billion rand for the period January to July 2017. This should contribute to the improvement of the balance on the current account, the strength of the rand, and lower imported inflation. Apart from the volatile rand exchange rate, the surplus on the trade account is partly due a balance of a payments correction that usually occurs due to subdued domestic economic performance, the lower level of economic activity and lower import volumes. Aggregate foreign trade is a sensitive variable to an open economy like that of South Africa. The fiscal position is the other area that mirrors difficult economic circumstances. The capital account of the BoP has frequently assisted the difficult balance of payment position of South Africa by substantial capital inflows from abroad. It is in this context that credit ratings of South Africa could be of critical importance.
The level of decline in exports and imports between June and July 2017 was notable in the exports of precious metals and stones that drop by 21%; base metals by 12% and prepared food 7%. Nominal import values of mineral products dropped by 27% (include crude oil); base metals 18%; and vehicles and transport equipment by 11%. Even with seasonal adjustment, the real value of in and exports dropped substantially between June and July 2017. The July 2017 trade numbers may be owing to an irregular movement and could therefore have a turnaround effect on business confidence in future.
Signs of Contradictions Although the economy faces difficult choices and contradictions, there are some positive developments to alleviate some of the burdens and turn the focus to problematic matters. The domestic automotive industry continued to maintain itself in the current challenging economic environment. Reduced new vehicle price pressures and a lower inflationary environment did not only dampened 8
SACCI Business Confidence Index – August 2017
the inflationary process, but with the 25 basis point reduction in the repo rate, provided some relief to consumers and business. It again proved the value of a politically independent monetary authority and its role in maintaining reasonable price stability, but also preventing the inflationary process getting out of hand and destroying the value of the local currency. Given that inflation in advanced economies is benign and remains lower than expected and while also lower in a number of emerging market economies, such as Brics partners Brazil, India, and Russia, it remains important to be committed to price stability and thus lower inflation to promote an environment for real growth. The relative strength of the rand in a climate in which the economy is unresponsive and business confidence is even worse, the contradiction of price stability may appear strange. However, if the current account deficit becomes smaller, less overseas capital is needed which reduces pressure on the rand, and should lead to further interest rate cuts and to real investment and economic activity.
Conclusion There appears to be contradictions within the local economy and between the domestic economic performance and the positive global economic outlook. However, the remarkable success in some areas of the domestic economy bears testimony to perseverance with tried and tested policy options in order to enhance the necessity of private sector investment and confidence. The positive developments with inflation, interest rates and the trade account of the BoP could serve as inspiration for other challenging areas in the economy and reinvigorate business confidence.
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SACCI Business Confidence Index – August 2017
General Economic Indicators
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