Business Confidence Face Reality

The SACCI Business Confidence Index (BCI) for July 2010 was released today at the SACCI Office in Rosebank, Johannesburg.

In July 2010 the SACCI BCI maintained a level of 84.3.  This level is 1.1 points above the July 2009 level and follows a recovery to 84.8 in June 2010. The BCI for July 2010 is the second highest reading for the BCI to date in 2010. If July 2010 is compared to June 2010 (month-on-month), five sub-indices of the BCI were positive, four were negative and four remained neutral. The sub-indices on the volumes of merchandise exports and imports recorded a relatively strong performance compared to previous months.

Relative to July 2009, eight of the sub-indices of the BCI improved with real retail sales and building construction still lagging recent economic improvements. The increase in liquidations is a legacy of the recession and the period of exuberance before the recession.  Higher real financing cost came about by default as inflation trended lower and nominal interest rates remained unchanged.

The Soccer World Cup 2010 was an exceptional success, and although it raised expectations during June 2010, a special effort is required to sustain the positive momentum and enhance the business outlook. Stronger domestic demand and stronger posturing in the international trade environment are necessary to promote sustained improvements in business confidence.

The substantial exchange rate volatility at present is primarily a function of the global financial flow of funds rather than a current account phenomenon. South Africa's highly developed financial markets provide a comfortable platform for these flows to take place over the short-term providing the potential for substantial returns. Leads and lags on proceeds or payments of global trade transactions also exaggerate the volatility of the rand exchange rate. Although the present rand strength is causing some discomfort, the reasons for the strength should be interrogated before ill-conceived policy on intervention is implemented, thereby contributing to economic distortions with potential unintended consequences for the economy.

The month of July 2010 renewed focus away from the sentiment of the world cup and returned it to the economic reality of a domestic economy struggling to gain momentum. The global economy also reflected tensions as the pace of positive financial market developments outpaced a lagging real economy. Business confidence has yet to perceive strong and real economic prospects.  

Released by the SACCI, Johannesburg - 5 August 2010

BCI July 2010 review.