Business confidence in the other services sector slightly dipped in the first quarter of this year amid a weak economy.
According to a survey by the Bureau for Economic Research (BER) released yesterday, business confidence in the other services sector fell by one point to 41 in the first quarter of this year, implying that about six out of 10 businesses in this sector were unsatisfied with business conditions.
Katrien Smuts, an economist at the research institute, said essentially level results came despite lower business volumes and deteriorating business conditions.
“Compared to the RMB/BER Business Confidence Index (BCI), confidence in the other services sector is slightly better, driven by relatively upbeat sentiment in the hospitality and business services sub-sectors,” Smuts said.
Business volumes and business conditions declined sharply, with significantly more respondents saying business volumes and conditions were worse than a year ago. This might indicated a normalisation in this sector, as both business volumes and conditions came from a protracted period of above-average levels.
Sentiment in the business services sub-sector rose by nine points to 51, revealing that more than half of respondents were satisfied with prevailing business conditions. In like manner, business volumes also moved upward and remained above the long-term average.
Confidence also improved in the real estate sub-sector, but BER noted it remaining at an“ uninspiring 14”. After slipping to near-record low levels of 8 in the previous quarter, confidence in the real estate sub-sector rose by six points this quarter. The level of confidence remaining was well below long-term average levels, reflective of the very low business volumes in this subsector.
Even though sentiment in hotels and restaurants were still relatively high, confidence declined from 74 to 62 in this year’s first quarter. Business volumes experienced an especially large setback, declining by 57 net percentage points to end the quarter at negative eight.
“It has not been below zero since the pandemic period ensued, signalling a post-recovery normalisation occurring in this sub-sector,” BER said.
For the transportation and storage sub-sector, sentiment declined by seven points to reach 38 in this period.
Smuts said the first quarter experienced a modest decrease in confidence, but both business volumes and conditions deteriorated much more.
“This represents a challenging start to the year, yet not all hope is lost, as there were some positive risk factors poised to bolster services throughout the rest of the year,” she said.
However, Smuts said the other services sector could benefit from potential consumer relief through relatively lower inflation and a high probability of interest rate cuts later in the year.
“In a strategic move to enhance South Africa's logistics scene, the government has recently appointed a new, market-oriented leader for Transnet, signalling their commitment to positive changes. These efforts should contribute to improved business conditions, especially in the transport sub-sector. However, political uncertainty surrounding the national elections on 29 May 2024 will remain a risk in the near term,” Smuts said.
Johann Els, Old Mutual chief economist, said the fact that the other services' confidence remained depressed was an indicative sign of a weak economy. There were lots of uncertainties around economic growth and lots of uncertainties ahead of the elections.
“It is just a reflection of weak economic growth last year. Ongoing concerns virtually everywhere in the business sector about the future path of the economy. Some of the uncertainties should be resolved after the elections. The base case is that the status quo will prevail, the current government will continue, current policies will continue after the elections,” Els said.
This whole environment should gradually start to improve in terms of confidence, that is, business confidence, consumer confidence, investor confidence later this year into next year, he said.
Els said the consensus expectation was that economic growth this year would be slightly better than last year.
“The continued easing with regard to the electricity constraint with less and less load shedding down the line having already seen significantly lower levels of load shedding thus far this year compared to a year ago. That should also help lift economic growth and confidence,” he added
He said moving forward the increasing role of the private sector in the economy should help lift growth and thus confidence.
“But growth and confidence hang together. You need better growth for better confidence and also better confidence for better growth. Gradually that will start to work its way through especially after the elections. There are lots of uncertainties at the moment but gradually all those factors around the stronger rand, lower inflation, lower interest rates, the uncertainty of the elections removed, less load shedding, etc, should assist in improving confidence later this year going into 2025,” Els said.
BUSINESS REPORT