SACCI Business Confidence Index

SOUTH AFRICAN CHAMBER OF COMMERCE AND INDUSTRY Business Confidence Index January 2018

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SACCI Business Confidence Index – January 2018

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 – January 2018

The SACCI Business Confidence Index 2015=100 Month

2011

2012

2013

2014

2015

2016

2017

January February March April May June July August September October November December

119.4 118.0 120.6 118.7 117.2 118.5 114.6 114.2 113.9 112.9 112.8 114.7

112.4 115.2 110.8 109.2 107.4 109.9 105.2 110.0 106.2 106.5 106.2 107.7

108.8 107.7 104.7 106.9 104.7 104.4 105.0 104.8 105.8 105.5 105.1 106.4

104.5 106.4 107.3 107.2 102.9 103.8 101.8 103.0 103.3 102.8 105.1 102.2

103.4 107.4 103.2 104.1 100.6 97.9 101.8 97.6 94.5 102.3 95.1 92.2

92.6 92.7 94.0 95.5 91.8 95.1 96.0 92.9 90.3 93.0 93.9 93.8

97.7 95.5 93.8 94.9 93.2 94.9 95.3 89.6 93.0 92.9 95.1 96.4

Average

116.3

108.9

105.8

104.2

100.0

93.5

94.4

2018 99.7

SACCI Business Confidence Index 150 Upward Phase of the Business Cycle

140

BCI 2015 = 100 130

Index

120 110 100 90 80 Source: SACCI

SACCI BCI Compared to Previous Year 10

5

-5

-10

-15

-20 Source: SACCI

-25

Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18

index points difference

0

2

Jan-18

Jan-17

Jan-16

Jan-15

Jan-14

Jan-13

Jan-12

Jan-11

Jan-10

Jan-09

Jan-08

Jan-07

Jan-06

Jan-05

Jan-04

Jan-03

Jan-02

Jan-01

Jan-00

Jan-99

Jan-98

Jan-97

Jan-96

Jan-95

Jan-94

Jan-93

Jan-92

Jan-91

Jan-90

Jan-89

Jan-88

Jan-87

Jan-86

Jan-85

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SACCI Business Confidence Index – January 2018

This Month’s BCI Results The SACCI Business Confidence Index (BCI) recorded its highest level of 99.7 in two and a half years in January 2018. In October 2015, the BCI measured 102.3. The BCI improved by 3.3 index points in January 2018 following on the improved level of 96.4 in December 2017. In January 2018 the BCI was more than ten index points better than the lowest 2017 BCI level of 89.6 (August 2017). The January 2018 BCI is two index points higher than the 97.7 in January 2017. The BCI however declined from 97.7 throughout 2017 to reach a low in August 2017. Apart from a more improved and positive business mood, there are indications from various short-term economic and market indicators that the pace and direction of change reflects a better business climate. There is the expectation that new leadership will lead to more promising and consistent business and economic policy options. Although the present business confidence carries a great deal of positive sentiment, the investment environment will benefit most to enhance sustainable economic growth and employment prospects. Only three of the thirteen sub-indices that comprise the SACCI BCI, had a negative monthly impact in January 2018; nine sub-indices were positive and one was unchanged. Five of the seven business activity sub-indices were positive while five of the six financial sub-indices had a positive monthly effect on the business climate. The ten positive and neutral sub-indices in January 2018 - following on the nine monthly positive and neutral effects of December 2017 - confirm a continuing improvement of the business climate. Increased merchandise trade import volumes, a stronger weighted rand exchange rate and higher retail sales volumes had the most notable positive monthly influence on the BCI in January 2018. The largest negative monthly effect came from merchandise trade export volumes. The annual increase in the BCI in January 2018 was caused by ten sub-indices improving on a year ago, two sub-indices that remained unchanged, and one sub-index that was negative. The largest annual positive contributions to the business climate were from lower inflation, increased merchandise export volumes, and improved real retail sales. The higher real cost of financing was the only annual negative effect on the BCI. Only one of the six financial sub-indices had a negative annual effect on the January 2018 BCI, but overall financial conditions were nevertheless easier in January 2018 than twelve months ago.

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SACCI Business Confidence Index – January 2018

Impact of BCI Sub-indices on the BCI

Previous Month

This Month

Previous Month

y/y Changes

This Month

m/m Changes

Energy Supply

-

o

o

o

Manufacturing

o

o

o

Exports

-

+

Imports

+ + + + + + +

+ +

+ + + o

+ o

o

+ + + + +

+ + +

BUSINESS CLIMATE INDICATORS *

Vehicle sales Retail sales Construction - buildings Inflation¹ Share prices Real private sector borrowing

+ o

-

-

Real financing cost

-

o

-

-

Precious metal prices

+ +

-

+ +

+

Rand exchange rate

+

-

* See notes on BCI on www.sacci.org.za 1. Excludes petrol, food and non-alcoholic beverages.

Cyclical Moves of Selected BCI Sub-indices 160

120 100 80 60 40

SHARE PRICES

RETAIL SALES

BUILDING PLANS

MAN PRODUCTION

VEHICLE SALES

EXPORT VOLUMES

4

Jan-18

Sep-17

May-17

Jan-17

Sep-16

Jan-16

May-16

Sep-15

May-15

Jan-15

Sep-14

May-14

Jan-14

Sep-13

May-13

Jan-13

Sep-12

Jan-12

May-12

Sep-11

Jan-11

May-11

Sep-10

May-10

20

Jan-10

Long-term Trend = 100

140

SACCI Business Confidence Index – January 2018

Economic Commentary Optimistic Economic Prospects The local perspective on economic performance appears to be somewhat sceptical despite indications that the lower turning point of the business cycle might have been reached. Not only has the business climate (SACCI BCI) improved substantially over a short period, but also it is evident that the pace of improvement has accelerated. Although positive sentiment is prompting the optimism, real activity lately accelerated from a subdued performance during the downward phase of the business cycle. The upper turning point in the present downward phase of the business cycle was determined as long back as December 2013. South Africa, however, could miss the global economic performance that appears to be gathering pace. World production grew by 3.7% in 2017 - 0.1 percentage point faster than anticipated earlier and 0.5 percentage point higher than in 2016. The acceleration in growth has been broad based, particularly in Europe and Asia. Growth forecasts for 2018 and 2019 are revised upward by 0.2 percentage point for each year to 3.9%. The IMF has revised South Africa’s growth prospects for 2018 and 2019 down to 0.9% for each year after the previous forecasts of 1.1% for 2018 and 1.6% for 2019. If the present local positive momentum and policy changes could be affected, growth for South Africa could well exceed the IMF forecasts. This could provide ideal opportunities for reforms that cover structural impediments, lift potential output and make growth more inclusive.

World Economic Forum Perspectives The most recent (2018) meeting of the World Economic Forum (WEF) in Davos, Switzerland again reiterated the importance of the world economic interaction, its effect on business and areas of operating in the global economic environment. Various matters were raised that are of importance in a global context:  Cutting red tape and enhancing international trade and investment.  Focus on corruption and illegal money flows.  “America First does not mean America alone.”  Compassion for people where technology should enable people.  Challenges can only be solved by collaboration and openness.  Protectionism is not an answer to international trade. The WEF has also published its 2017/18 Competitiveness Report. It is worth noting South Africa’s position according to various matters that is important to business in the global milieu. Although the rankings may not be comforting, it provides a relative base from where weaknesses and strengths can be judged. South Africa’s overall competitiveness ranking in recent years regressed from position 52/144 (2012/13) to 47/138 (2016/17) to 61/137 (2017/18) where rank number 1 is the most competitive. The numbers below gives an indication of individual areas of performance out of 137 countries.  Overall - 61/137  Basic requirements - 92/137

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SACCI Business Confidence Index – January 2018

 

Efficiency enhancers - 52/137 Innovation and sophistication – 39/147

Of the twelve sub-areas, the weakest ranking is with health and primary education (121/137); labour market efficiency (93/137); higher education (85/137) and macroeconomic environment (82/137). The six most weak elements for doing business amongst 16 problematic factors are (in declining order): 1. corruption 2. crime and theft 3. political instability 4. tax rates 5. inefficient government bureaucracy 6. poor work ethic, etc. Despite low competitive rankings in certain areas, South Africa is performing relatively well within the emerging market domain. If the areas identified above could be improved on, the economic performance could be greatly enhanced. The Charts below give an indication of South Africa’s performance in emerging market context. Emergency Market Indicators - US dollar Exchange Rate 25

15 10 5 0

Poland

Mexico

Greece

Malaysia

South Africa

Israel

Thailand

Chile

South Korea

Taiwan

Singapore

India

China

Egypt

Russia

Australia

Turkey

Colombia

Brazil

Indonesia

Pakistan

-10

Hong Kong

-5

Argentina

y/y % change to 24 January 2018

20

Emerging Market Indicators - Consumer Inflation 25.0

15.0

10.0

6

Egypt

Turkey

Mexico

India

Pakistan

South Africa

Colombia

Indonesia

Brazil

Malaysia

Russia

South Korea

Czech Republic

Chile

China

Poland

Australia

Hong Kong

Taiwan

Thailand

Greece

0.0

Israel

5.0

Singapore

Percent

20.0

SACCI Business Confidence Index – January 2018 World Stock Markets in US dollar 30 December 2016 to 24 January 2018 80 70

% Change

60 50 40 30 20 10

0

WORLD ALL MSCI

EMERGING MARKETS MSCI

POLAND

ARGENTINA

CHILE

Greece (Althex Comp)

INDIA BSE

HONG KONG HANG SENG

TURKEY ISE

BRAZIL

ITALY FTSE/MIB

RSA JSE AS

SOUTH KOREA

GERMANY DAX

SINGAPORE STI

THAILAND

BELGIUM BEL 20

JAPAN NIKKEI

US DJIA

TAIWAN TWI

FRANCE CAC 40

MALAYSIA KLSE

COLOMBIA IGBC

EGYPT

INDONESIA JSX

CHINA SSEA

ISRAEL

MEXICO

BRITAIN FTSE 100

PAKISTAN

RUSSIA RTS

-20

AUSTRALIA ALL ORD

Source: The Economist

-10

Emerging Market Economies Economic Growth 12.0 10.0

Y/Y % growth

8.0 6.0 4.0

2.0 0.0

Source: The Economist

Turkey

India

China

Malaysia

Pakistan

Poland

Indonesia

Czech Republic

Thailand

Argentina

Egypt

Hong Kong

Taiwan

Singapore

South Korea

Australia

Chile

Colombia

Israel

Russia

Mexico

Brazil

Greece

South Africa

-2.0

Conclusion The more recent improvement of business confidence and notably the expectation of a more business friendly environment and sound and true performances by the public and private sector should greatly enhance the economy and job creation. It is therefore most probable that the assessment of an environment that is ready for local and foreign fixed investment, also should greatly benefit and help to remedy the important challenges and adjustments facing the South African economy over the immediate and medium-term.

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SACCI Business Confidence Index – January 2018

General Economic Indicators Indicator

Consumer inflation headline urban (%) Consumer inflation urban - excl. food, bev. & fuel (%) Money supply M3 eop (% Δ Y-o-Y) Private sector credit eop (% Δ Y-o-Y) Real prime overdraft rate eop (%)* Prime overdraft rate eop (%) Liquidations number sa Bond yield 5-10y govt eop (%) R / US$ average R / Euro average

Indicator

Period

Direction

Latest

Dec-17 Dec-17 Dec-17 Dec-17 Dec-17 Jan-18 Dec-17 Jan-18 Jan-18 Jan-18

Date

4.7 4.1 6.4 6.7 5.9 10.25 153 7.82 12.20 14.88

Direction

Latest

Previous

4.6 4.3 6.6 6.5 5.7 10.25 220 7.88 13.13 15.55

Previous

2016

6.3 5.8 6.1 5.1 4.4 10.50 161 8.65 14.70 16.28

2016

2011

5.0 4.0 8.3 6.2 4.8 9.00 297 8.01 7.25 10.08

2011

Income & wealth tax / GDP (%) saar Total tax / GDP (%) saar Public sector borrowing requirement / GDP (%) Public sector expenditure / GDP (%) Budget Balance / GDP (%)

q3-17 q3-17 q3-17 q3-17 q3-17

14.6 27.3 6.7 41.3 -9.4

16.3 29.3 6.9 28.5 -3.2

15.1 28.2 3.8 28.4 -4.2

14.1 26.0 4.2 27.1 -4.0

Imports / GDE (%) Exports / GDP (%) Net foreign investment flows / GDP (%) Current account balance / GDP (%)

q3-17 q3-17 q3-17 q3-17

28.1 29.1 2.5 -3.7

29.1 30.0 3.3 -1.6

30.2 30.3 4.8 -3.3

29.9 30.4 3.4 -2.2

Gross domestic saving / GDP (%) saar Gross capital formation / GDP (%) saar Net fixed capital formation / GDP (%) GDP growth (% Δ Y-o-Y)

q3-17 q3-17 q3-17 q3-17

16.3 18.7 0.8

16.2 18.6 1.3

16.1 19.4 5.4 0.3

17.5 19.7 6.2 3.3

Δ=change; eop=end of period; Y-o-Y=year-on-year; q=quarter; sa = seasonally adjusted; saar=seasonal adjusted annual rate; GDP=Gross Domestic Product; GDE=Gross Domestic Expenditure. *Deflated by inflation excl.food, bev. & fuel.

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