Business confidence in South Africa drops to record low - TechCentral

Business confidence in South Africa drops to record low

South African business confidence plunged to the lowest level in 45 years due to the impact of the coronavirus pandemic, with companies even more pessimistic now than when disinvestment from the country over its apartheid policies started gaining momentum more than three decades ago.

A quarterly gauge measuring business confidence fell to 5 in the second quarter from 18 in the previous three months, Rand Merchant Bank and Stellenbosch University’s Bureau for Economic Research said in a statement on Wednesday.

The index started in 1975 and the previous low of 12 was in 1985, RMB said. That was the year the United Nations Security Council called on members to introduce more far-reaching economic sanctions against South Africa.

A reading of 5 means “just about every respondent in the second quarter was unsatisfied with the prevailing business conditions”, RMB said. The survey was based on the responses of 1 800 business executives between 13 May and 1 June.

South Africa imposed a strict lockdown on 27 March aimed at limiting the spread of the virus. That shut down all economic activity except essential services for five weeks. A gradual, phased re-opening of the economy started on 1 May.

“Almost overnight, a significant portion of businesses had no income but continued to be liable for expenses,” RMB said. While the lifting of restrictions could increase confidence, the road to a partial recovery is likely to be slow and bumpy due to uncertainty regarding the development of the infection curve, the bank said.

Massive recession

The economy slumped into a recession even before the virus struck and is now forecast to contract the most in at least four decades as restrictions weigh on activity and disrupt supply. National treasury predicts GDP could contract as much as 16.1% this year, depending on how long it takes to contain the outbreak.

“Covid-19 has drastically changed the already-weak economic landscape and perhaps, in some cases, permanently,” said Ettienne le Roux, RMB’s chief economist. “We are likely only beginning to fully appreciate the complexity of the economic impacts of this pandemic.”

A monthly business confidence index compiled by the South African Chamber of Commerce and Industry also dropped to an all-time low in April and was then temporarily suspended due to a lack of activity during the lockdown.  — Reported by Prinesha Naidoo, (c) 2020 Bloomberg LP

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