South African business sentiment recovered in the third quarter from an almost three-year low, though power outages, high interest rates and outbreaks of social unrest continue to weigh on confidence.
A quarterly business confidence index compiled by FirstRand’s Rand Merchant Bank and Stellenbosch University’s Bureau for Economic Research rose to 33 in the three months through September from 27 in the prior quarter, according to a report published on Wednesday. The recovery was driven by retailers who saw profitability improve on more moderate purchasing price increases, even as sales overall remained soft.
The release comes a day after government data showed South Africa’s economy grew by a faster-than-expected 0.6% in the second quarter, helped by an improved performance in the finance and manufacturing sectors.
“Although higher, sentiment is still very weak,” the report noted. “Indeed, the current level of the index suggests that two-thirds of respondents are dissatisfied with prevailing business conditions.”
According to the survey, sentiment among manufacturers increased six points to 23, but remained the lowest among the sectors included in the composite index. The improvement was likely due to less frequent power cuts and a return to production in industries that had recently experienced disruptions.
South African companies are grappling with the worst outages on record as Eskom, which provides almost all of the country’s electricity, has kept the grid from collapsing by cutting power when it’s been unable to meet demand.
“The headline result of the Business Confidence Index suggests that the economic malaise affecting South Africa in preceding quarters continued into this one,” said Isaah Mhlanga, chief economist and head of research at RMB. “There are different forces at play with manufacturing production and building activity improving, but interest rate sensitive sectors that are distressed.”