Business confidence index lowest in 35 years

Picture: 123RF/OLIVIER LE MOAL
Picture: 123RF/OLIVIER LE MOAL

Business confidence fell to the lowest levels ever recorded during April as the cumulative effects of the coronavirus lockdown, ratings downgrades and an overstretched fiscus took hold in an economy already confronting recession.

The SA Chamber of Commerce and Industry’s business confidence index (BCI) fell to 77.8 in April from 89.9 — its lowest level since the index’s inception in 1985 and its second sharpest month-on-month decline on record, according to the chamber.

Business confidence is seen as a necessary precursor to investment in the economy, which is critical to boosting growth and helping to create jobs.

Even before the ravages of the lockdown implemented to slow the spread of the disease, SA’s business confidence levels were fragile, languishing near record lows, while unemployment levels were near 30%.

Though SA entered a marginally less restricted level 4 lockdown at the beginning of May, the effects on the economy are still expected to be deep.

Depending on the severity and the duration, economic growth is expected to contract anywhere between 5.6% and 16.1%, according to research the Treasury presented to parliament last week.

Under these scenarios, jobs losses could be anywhere between three-million to seven-million.  

The marked annual decline was largely as a result of the lockdown’s effect on economic activity, and the business climate was dragged down by the weaker rand, depressed new vehicle sales, lower merchandise import volumes, and much weaker share prices on the JSE, according to the chamber.

“SA’s challenges are compounded by four constraints that affect the economy at present — recessionary economic conditions, the Covid-19 lockdown, an over compromised fiscal position, and the downgrading of the SA’s sovereign credit rating to junk status,” the chamber said.

Alongside the economic effects of the lockdown, SA’s economic performance and the downgrades by both Moody’s Investors Service and S&P Global led to “noticeable” net sales of bond and equities by nonresident investors.

Nonresidents sold R102.2bn in SA assets in the first quarter of the year vs the R140.8bn sold during the whole of 2019, Sacci noted.

“This outflow compounds the difficulty to restore investor confidence and fixed capital formation post-lockdown,” it said.

There were a number of factors stemming from the declaration of a national disaster and the lockdown impairing the economy, the business climate and the tempo of the recovery.

These including the timelines of the five-phase reopening process, revenue losses to the fiscus, limitations to the sustainability of fiscal relief packages and state owned enterprises financial and operational difficulties.

“It remains imperative that the economic performance recovers noticeably after the effects of the lockdown has eased,” it said.

“Though the health risks of Covid-19 might remain, the effect of an economy that suffers from additional structural deficiencies after the lockdown could lead to further fragmentation and imbalances.” — BusinessLIVE

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