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BREAKING: Business confidence and GDP could recover 3rd quarter

GDP can recover some lost ground, possibly increasing by an annualised rate of 20%-25% in the third quarter, according to RMB economists.

GDP can recover some lost ground, possibly increasing by an annualised rate of 20%-25% in the third quarter, according to RMB economists. After falling from 18 to an all-time low of five in the second quarter, the RMB/BER Business Confidence Index (BCI) rebounded to 24 in the third quarter. From such a low base, when the strictest of lockdowns took effect, this improvement is not entirely unexpected. Even so, while the outcome is pleasing, sentiment remains heavily depressed; almost eight out of every 10 business executives surveyed regard prevailing business conditions as unsatisfactory.

The third quarter survey was conducted online between 12 and 31 August. It covered about 1,800 executives spread across building, manufacturing and the domestic trade sectors, i.e., the retail, wholesale and motor trade. The fieldwork for the third quarter survey covered the period immediately following the announcement by the president of moving the country to the less restrictive level 2 on 17 August. It was also completed before the renewed onset of widespread load shedding.

Detail

Of the five sectors making up the composite RMB/BER BCI, the rebound in wholesale confidence by 29 points to 33 in the third quarter was the largest. A vibrant agricultural sector (that boosted certain consumer goods sales); and a further recovery in international trade, are two key factors that drove the increase in wholesale confidence. After falling to 11 in the second quarter, retail sentiment improved by a sizeable 25 points to 36. Yet, this improvement was only partially driven by increased sales volumes. Other factors that also helped to lift confidence were expectations of better times ahead, further progress made in reducing costs (particularly through slashing inventories) and an uptick in turnovers (thanks to somewhat stronger sales volumes and widespread but small selling price increases).

Manufacturing confidence rebounded to 22 in the third quarter, up from six in the second quarter and 17 in the first quarter. Despite this improvement, weak demand, supply chain disruptions and intermittent temporary factory closures due to positive COVID-19 cases all continued to put a damper on the growth in domestic sales and production. Motor dealer confidence jumped from a mere two points to 16, taking the index back to the same low level of the first quarter. Although new vehicle sales recovered somewhat, they remained disappointingly weak.

Having fallen from 15 to just two in the second quarter, building confidence recovered to 14 in the third quarter. Other than increased spending on maintenance and work-from-home related renovations and improvements; projects for building contractors and sub-contractors in the residential property market remained limited. Equally, activity in the non-residential property market showed little improvement – an outcome that is understandable given, for example, the high and rising vacancy rates in office space.

Bottomline

Figures released by Stats SA yesterday indicated that real GDP contracted by an annualised rate of 51% in the second quarter – but shrinking by “only” 17% on a year-on-year basis. “While no doubt discouraging, the improved RMB/BER BCI in the third quarter is supportive of these figures representing the worst point for this cycle,” said Ettienne Le Roux, chief economist at RMB. Further corroborating this notion is the global economy that is healing, export volumes that are growing again, overall domestic activity that is on the mend and consumer confidence which, similarly to the BCI, inched higher in the third quarter.

Although a lot of data is still outstanding, these developments point to a much-improved outcome where GDP can recover some lost ground, possibly increasing by an annualised rate of 20%-25% in the third quarter – an encouraging outcome, but one that would still leave South Africa’s GDP considerably smaller than it was last year. The government, in conjunction with the private sector, have much work to do to rebuild an economy that just suffered a devastating blow from the COVID-19 induced global lockdown, as well as local shock.

 

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