In Q3 2011 the RMB/BER Business Confidence index fell sharply to 39.0, down 9 index points from the Q2 2011 reading. This is the second consecutive quarterly decline in the index, highlighting the softening of domestic business conditions.
This decline in business confidence is reflected in a wide range of domestic economic conditions including softening vehicle sales, slowing manufacturing production and weak construction activity. This does not imply that trading and business conditions are back in recession or about to go into recession. Rather it reflects the fact that the economy appears to have lost a significant amount of momentum in the past 6 months.
Furthermore, the average level of business confidence in SA, measured since the start of 1980, is 46.7 index points. This suggests that the current business confidence reading (39) is well below the long-term average. The confidence reading has only been above 50 in one quarter (Q1 2011) since as far back as Q4 2007, highlighting that the economy has struggled to fully recover from the Great Recession.
There is a vague, but positive relationship between business confidence and GDP growth. Business confidence is expected to remain fairly weak in the quarters ahead, but will avoid falling to a level that is consistent with a return to recession conditions.
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