Harsh Economic Realities
The SACCI Business Confidence Index (BCI) for May 2012 was released today. It declined by a further 1.5 index points to 92.8 from 94.3 in April 2012. The BCI is currently 8.4 index points lower than in May 2011 when the BCI registered 101.2 (see report here - PDF).
In May 2012, the BCI was at its lowest level since November 2002 when the index stood at 92.1. The BCI's highest level was 122.1 in December 2006 and its most recent low was 93.1 in March 2009, during the recession which started in December 2007.
The current downward trend in the BCI that started in April 2011 has weakened further to mark a conspicuous deterioration in the business mood. The BCI was marred by notable negative movements in the sub-indices in May 2012. Only two of the thirteen sub-indices of the BCI were positive month-on-month. Both the financial and real economic components had only one sub-index each that moved in a positive direction.
Over the medium-term, the annual (y/y) comparison shows that only three of the thirteen sub-indices improved in May 2012: household spending (retail and vehicles), government spending and lower real interest rates.
SACCI is concerned that the fiscal tightrope that Europe needs to walk while balancing economic sustainability and political intolerance will leave Europe's debt crisis unresolved for the short to medium-term. The contagion from the economic impasse in Europe is gaining in global impact as faster growing economies are now also experiencing a slowdown while circular and multiplier effects continue to grow.
The unstable and weakening economic circumstances both abroad and domestically, pose serious challenges to the business environment and business confidence in South Africa. The lack of alignment across economic policy positions locally is cause for concern as business seeks policy stability in an increasingly perplexing domestic economy.
Local business environments continue to be plagued by challenges. In terms of the municipal service sub-index, electricity output deteriorated (negative effect) while real borrowing from the banking sector by municipalities declined (positive effect) compared to last year. The relative price (to the producer price) of electricity declined (positive effect) while the relative price of water and gas increased (negative effect). SACCI is disturbed as the composite sub-index for municipal services deteriorated on a month-on-month and year-on-year basis in May 2012 on what was already a low level.
For a full background to this month's SACCI BCI see the Economic Commentary in the BCI report on www.sacci.org.za.
Statement issued by Mr. Richard Downing SACCI Economist and Mr. Neren Rau , SACCI CEO, June 7 2012
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