SA Business Confidence Q3 2010

In Q3 2010 the RMB/BER Business Confidence index rose by a healthy 11 index points to 47.0, its highest level since Q1 2008. The index has risen convincingly from a near-term low of 23 index points in Q3 2009. The BER has indicated that, due to an administrative problem, the actual data release will only be available later in the week.

This improvement in business confidence is reflected in a wide range of domestic economic conditions including much better vehicle sales, improved retail sales, and rising manufacturing production. This does not imply that trading and business conditions are vibrant. Rather is reflects the fact that the economy appears to be moving past the worst of the recession and that most sectors have seen an increase in activity relative to an extremely low or depressed base.

The average level of business confidence in SA, measured since the start of 1975, is 44.8 index points. This suggests that the current business confidence reading is fractionally above the long-term average. A confidence level below 50 signals a generally ‘negative’ environment.

A breakdown of the confidence index by sector reveals that confidence levels have risen in all five of the major sub-sectors measured, namely wholesale trade, retail trade, motor industry, manufacturing, and building activity. The largest increase occurred in the motor industry, which rose by 30 index points to 79 (which is not all that surprising considering the improved new vehicle sales). This is the highest level of confidence in the motor industry since Q3 2006. There was also a significant improvement in confidence within the retail trade business (up 14 index points to 52).

There is a vague, but positive relationship between business confidence and GDP growth. Business confidence is expected to improve further in the quarters ahead, but is likely to take a fairly long-time to regain the previous peaks.