Business Confidence Index (BCI) for December 2019

9 January 2020

Although the BCI remained virtually unchanged at 93.1 in December 2019 if compared to 92.7 in November 2019, the BCI was 2.1 index points below the level of 95.2 in December 2018. The BCI declined from an average of 95.5 in 2018 to 92.6 in 2019. The composite BCI stood its ground in December, but some of the sub-indices were quite inconsistent during December.

Six of the thirteen sub-indices of the BCI were unchanged between December and November 2019, four were positive, and three made a negative impact on the BCI in December. Despite the impulsive moves in some of the financial sub-indices during December, the six financial sub-indices on average remained unchanged. Of the seven activity sub-indices, the impact between negative and positive moves in December were slightly positively slanted.

The largest monthly positive impacts on the BCI came from merchandise import volumes, the real value of building plans passed, new vehicle sales, and manufacturing output. Real merchandise exports and energy supply (due to load shedding and oil price), had notable negative monthly impacts on the BCI in December.

The BCI declined by 2.1 index points on the December 2018 level. The most positive annual impacts came from the US-dollar price of precious metals, new vehicle sales and lower inflation. Merchandise import and export volumes, and energy supply had notable negative impacts on the BCI in December 2019 compared to December 2018.

The 3^rd quarter 2019 data on the South African economy reflects an under-performing economy. Indications are that the economy’s potential is wavering and requires positive corrective steps to direct the economy in an appropriate direction. The subdued world economy also does not facilitate an export driven recovery. With South Africa’s structural challenges impacting on our global competitiveness, the business climate has remained murky. The upcoming SONA, Budget 2020/21, and the evaluation by the credit rating agencies, will provide some direction on the way forward.

Together with the limited capacity of a large number of public sector entities, the deficit on the current account and the flows on the financial accounts of the BoP present South Africa with the reality of the present economic situation. Sensitivities with regard to the fiscal situation, the balance of payments, views expressed in the SONA, the Budget, and credit ratings, will have a decisive impact on the business climate and the economic performance of South Africa in 2020.

The SACCI Business Confidence Index (BCI)

2015=100

This month’s BCI results

The Business Confidence Index (BCI) of SACCI reflects how businesses are reacting to and how they are experiencing the business environment. The BCI is therefore market-related and recognizes economic developments that have a bearing on the business mood in South Africa. Although the BCI virtually moved sideways at 93.1 in December 2019 when compared to 92.7 in November 2019, it nevertheless was 2.1 index points below the level of 95.2 in December 2018 and declined from an average of 95.5 in 2018 to 92.6 in 2019.

The composite BCI stood its ground in December, but some of the sub-indices were quite inconsistent during December. This was particularly the case with the rand exchange rate against major trading currencies, US-dollar precious metal prices, the JSE all-share price index, and the US-dollar crude oil price. These intra-month moves had positive and negative impacts on the business mood during December.

Six of the thirteen sub-indices of the BCI were unchanged between December and November 2019, four were positive, and three made a negative impact on the BCI in December. Despite the impulsive moves in some of the financial sub-indices during December, the six financial sub-indices on average remained unchanged. Of the seven activity sub-indices, the impact between negative and positive moves in December were slightly positively slanted.

The largest monthly positive impacts on the BCI came from merchandise import volumes, the real value of building plans passed, new vehicle sales, and manufacturing output. Real merchandise exports and energy supply (due to load shedding and oil price), had notable negative monthly impacts on the BCI in December.

The BCI declined by 2.1 index points on the December 2018 level. The most positive annual impacts came from the US-dollar price of precious metals, new vehicle sales and lower inflation. Merchandise import and export volumes, and energy supply had notable negative impacts on the BCI in December 2019 compared to December 2018.

Business confidence could tilt either way in the weeks and months ahead, and will depend on the economic performance envisaged in the upcoming State of the Nation address (SONA) and Budget. Broader economic developments are reviewed in the Economic Review on page 5.

Impact of BCI sub-indices on the BCI

This month’s economic review

Flat Economic Performance

The 3^rd quarter 2019 data on the performance of the South African economy reflects an under- performing economy. Indications are that the economy’s potential is wavering and requires positive corrective steps to direct the economy in an appropriate direction. The subdued world economy also does not facilitate an export driven recovery. With South Africa’s structural challenges impacting on our global competitiveness, the business climate will remain murky. The upcoming SONA and Budget 2020/21 together with the evaluation of the credit rating agencies will provide some direction on the way forward.

Slowing Economic Growth

The table below reflects how economic growth in South Africa faltered. The more labour intensive sectors like manufacturing, mining and quarrying, construction, and agriculture, forestry and fishing hardly expanded or even declined during 2019 compared with the corresponding period a year ago. With the unemployment rate hovering above 29 percent and less job opportunities evident, socio economic circumstances are bound to get worse before they can get better.

The GDP grew by a low 0.3% y/y in the first three quarters of 2019. GDP declined between the 2^nd and the 3^rd quarters of 2019 – suggesting possible technical recessionary conditions in the economy. The worst performing sectors over the first nine months of 2019 was agriculture (-9.4% y/y), construction (-2.6% y/y), mining (-2.2% y/y), electricity (-1.4% y/y), and manufacturing (-0.1% y/y). With the tertiary sector being the best performer, the evidence suggests turbulent period ahead for the South African economy.

A mismatch between domestic supply and demand could indicate serious implications for the Balance of Payments (BoP), the rand exchange rate and inflation if not carefully managed. Needs and expectations contain structural risks if growth (supply) contracts. It is in this vain that prudent monetary policy stance and current relative price stability (low inflation) should be continued. Given the serious public sector financial imbalances there is little room for manoeuvring on the fiscal position or indeed, adopt a more accommodating monetary stance. 

GDP Growth

 Note: Y-o-Y %      = year-on-year % change

Issued by SACCI, 9 January 2020