Dip in SA's business confidence fuels recession fears

Cape Town – South Africa’s business confidence declined further in the third quarter of 2015, raising fears of a looming recession.

After falling by six points in the second quarter, the RMB/BER Business Confidence Index (BCI) fell by a further five to 38 points in the third quarter of 2015, the Bureau for Economic Research (BER) said in a statement on Wednesday.

The BER said the drop in confidence was because of the sharp decline in retailer confidence due to under pressure sales volumes and increased downward pressure on profitability.

Historically, whenever the RMB/BER BCI dropped to below 30 index points it signalled a pending recession, it explained. At a level of 38, business confidence is thus not too far away from this threshold.

RMB chief economist Ettienne Le Roux said anything could push it over that threshold.

"To be sure, given how weak the economy is right now, and made even more vulnerable by increased uncertainty around political, economic policy and labour developments, it wouldn't take much of a setback to actually push it over the edge," he said.

“As such, a drawn out strike in the gold mining sector and/or another strong blow to the steel industry could easily do the trick. The economy's resistance level is simply not strong enough.”

The cumulative decline over the past six months has reduced confidence to its lowest level since the end of 2011.

Retail confidence fell by 18 points to 34 and wholesale confidence dropped by 14 points to 50. Building confidence declined somewhat, but the mood among manufacturers and new motor dealers improved slightly from depressed levels, explained the BER.

Sales are increasingly being suppressed by moderating wage inflation, higher tax rates, rising interest rates, growing job losses and sharply lower consumer confidence, it explained.

The BER survey results show that wholesale sales volumes remained under pressure in the third quarter, which also knocked confidence.

Source http://www.fin24.com/Economy/Dip-in-business-confidence-fuels-recession-...