Business confidence continues downward trend, Sacci warns of recession
Thématique :
RSA
By Christy van der Merwe, Engineering News, 06/02/2008
The business confidence index for January 2008 dipped to 93,8 points - the lowest level since October 2003, the South African Chamber of Commerce and Industry (Sacci) reported on Wednesday.
Sacci economist Richard Downing said that this was probably still not capturing the full extent of uneasiness among businesses owners, considering the recent power crisis developments in South Africa.
The shortage of electricity posed a severe threat to production capacity for goods and services, as critical production time was lost owing to electricity outages. "Even if the loss in output could be limited to 5% to 10% of gross domestic product, it will be difficult to attain any growth in the economy in 2008," Downing said.
He went on to say that should the crisis not be effectively managed in the short term, and businesses lost production time of two hours or more a day, it was likely that South Africa's economic growth rate could decline to about 1% or 2%.
"There is a real threat that the economy could go into recession. This [electricity shortage] is a challenging, challenging, challenging issue for the economy," he cautioned.
The way in which those who have the obligation to supply electricity manage the electricity crisis, would determine the ultimate performance of the economy and its consequences, Sacci indicated.
It was expected to be a "battle to keep production levels constant, never mind achieving growth", said Downing.
The weaker rand against important trade and investment related currencies bore testimony to a troubled business mood, however, the effect of the weaker rand on inflation, could put monetary policy back on the defensive against rising price instability Sacci said.
Private sector participation, and privatisation was viewed as a possible solution to the dilemma. "Actions speak louder than words, and business and investors will be sensitive about how the dilemma is handled in the short-term, and how it would be addressed in the long-term," outgoing Sacci CEO Dr. Kwandi Kondlo added.
Manufacturing, imports, exports, and the number of building plans approved all declined in January, when compared with the previous month.
The business confidence index is a composite weighted index, which considers 13 sub-indices and reflects what business is doing and experiencing, rather than what it is saying.
The sub-indices are, the average monthly weighted exchange rate of the rand against the dollar, euro and pound, as well as the volatility of the rand exchange rate. The core consumer inflation rate for metropolitan and urban areas, the real predominant prime overdraft rate, retail sales volumes, rate of change in real credit extension to the private sector, and the average weighted US dollar price of gold and platinum. Merchandise import volumes, and merchandise export volumes were also important indices, as were new vehicle sales, and liquidations of companies and closed corporations. The volume of manufacturing production was another index, along with the real value of private sector building plans passed, and finally, the all-share price index of the JSE securities exchange.
The business confidence index for January 2008 dipped to 93,8 points - the lowest level since October 2003, the South African Chamber of Commerce and Industry (Sacci) reported on Wednesday.
Sacci economist Richard Downing said that this was probably still not capturing the full extent of uneasiness among businesses owners, considering the recent power crisis developments in South Africa.
The shortage of electricity posed a severe threat to production capacity for goods and services, as critical production time was lost owing to electricity outages. "Even if the loss in output could be limited to 5% to 10% of gross domestic product, it will be difficult to attain any growth in the economy in 2008," Downing said.
He went on to say that should the crisis not be effectively managed in the short term, and businesses lost production time of two hours or more a day, it was likely that South Africa's economic growth rate could decline to about 1% or 2%.
"There is a real threat that the economy could go into recession. This [electricity shortage] is a challenging, challenging, challenging issue for the economy," he cautioned.
The way in which those who have the obligation to supply electricity manage the electricity crisis, would determine the ultimate performance of the economy and its consequences, Sacci indicated.
It was expected to be a "battle to keep production levels constant, never mind achieving growth", said Downing.
The weaker rand against important trade and investment related currencies bore testimony to a troubled business mood, however, the effect of the weaker rand on inflation, could put monetary policy back on the defensive against rising price instability Sacci said.
Private sector participation, and privatisation was viewed as a possible solution to the dilemma. "Actions speak louder than words, and business and investors will be sensitive about how the dilemma is handled in the short-term, and how it would be addressed in the long-term," outgoing Sacci CEO Dr. Kwandi Kondlo added.
Manufacturing, imports, exports, and the number of building plans approved all declined in January, when compared with the previous month.
The business confidence index is a composite weighted index, which considers 13 sub-indices and reflects what business is doing and experiencing, rather than what it is saying.
The sub-indices are, the average monthly weighted exchange rate of the rand against the dollar, euro and pound, as well as the volatility of the rand exchange rate. The core consumer inflation rate for metropolitan and urban areas, the real predominant prime overdraft rate, retail sales volumes, rate of change in real credit extension to the private sector, and the average weighted US dollar price of gold and platinum. Merchandise import volumes, and merchandise export volumes were also important indices, as were new vehicle sales, and liquidations of companies and closed corporations. The volume of manufacturing production was another index, along with the real value of private sector building plans passed, and finally, the all-share price index of the JSE securities exchange.
