The Bureau for Economic Research (BER) survey of private business sentiment shows that the Business Confidence Index (BCI) for Q3 improved slightly to 33 from 27 in Q2.
While the small gain is encouraging, BCI remains at sharply depressed levels with the Q3 reading implying that two-thirds of the surveyed businesses reported prevailing business conditions as ‘unsatisfactory’.
The BCI data come just a day after the release of the Q2 GDP data that showed a 5,7% q/q sa rise in private fixed investment, which appears to have been largely driven by investment in alternative energy solutions, while non-energy investment remained subdued.
The data are consistent with BER’s view that, outside of energy-related spending, the outlook for a more generalised private sector investment cycle remains weak.
Private sector business sentiment improved marginally in Q3 23 but remained in sharply pessimistic territory.
The BER reports the BCI as an aggregation of survey responses from five sectors (Figure 1). Four of the five surveyed sectors reported higher confidence levels in Q3 23 compared with Q2 23, with the demand-side of the economy primarily contributing to the improved business sentiment.
Sentiment rose the most in the retail sector, with confidence up 12pts to 32 in Q3, while wholesalers and new vehicle dealers also reported higher confidence readings. Given the ongoing financial pressure against consumers, we suspect that a reduction in load shedding around the time of the survey could be the major explanatory factor for the improvement in confidence since it imposes large operational costs on businesses.
Manufacturers also reported slightly higher sentiment in Q3, at just 23, after two quarters of a confidence reading of 17, but sentiment amongst building contractors declined to 41 in Q3 (Q2 23: 43).
Composite business indicators show improving business conditions in the private sector.
The composite indicators provide further details about underlying business conditions. It is worth noting that these metrics are compiled by asking survey respondents how conditions in Q3 23 compared against a year earlier. In contrast, the BCI is simply the percentage of business who report business conditions as ‘satisfactory’.
Realised business conditions improved from -49pts in Q2, the lowest since the Covid-19 related ‘hard’ lockdown in Q2 20, to -39 in Q3. Better business conditions were underpinned by rising indices of activity in the quarter. Meanwhile, on the pricing side, the survey data showed a moderation in both purchasing and selling prices during Q3. However, this survey was carried out before the sharp fuel price increases implemented this week.
The latest BCI data suggest continued caution regarding the outlook for private sector investment.
The Q2 national accounts data published earlier this week showed that private sector fixed investment rose 5,7% q/q sa after 0,7% growth in Q1. However, the underlying data show that the investment spending growth was mainly driven by the ‘machinery and equipment’ category, which BER believes indicates firms’ spending on alternative energy sources.
Excluding spending on ‘machinery and equipment’, investment was down slightly in Q2 (see South Africa: Stronger-than-expected GDP growth in Q2 23, 5 September 2023). As such, despite the slight improvement in Q3, the ongoing weakness in private sector business confidence suggests that investment spending outside of energy-related projects may remain subdued in the near term.