SA business mood jumps to highest in more than two years

South African business confidence jumped to the highest level in more than two years in the fourth quarter as further easing of lockdown restrictions spurred a resurgence in activity but economic risks could weigh on sentiment in the new year.

A quarterly gauge measuring the business mood rose to 40 from 24 in the previous three months, FirstRand Ltd.’s Rand Merchant Bank unit said Wednesday in a statement. That’s the highest level since the second quarter of 2018, when the index that is compiled by Stellenbosch University’s Bureau for Economic Research also measured 40.

The improvement adds to data that suggests Africa’s most-industrialised economy is past the worst point in the virus-driven downturn, when output contracted by an annualised 51% and 2.2 million jobs were lost in the second quarter. While the South Africa remains on level 1 lockdown to curb the spread of the virus, most of the economy has reopened.

However, the surge in confidence may not be sustainable, according to Ettienne le Roux, RMB’s chief economist.

“It only signifies an economy that’s out of intensive care, and not out of high care,” he said. “The strong rise in confidence among consumer-facing sectors could easily turn out to be temporary if the ‘kicker’ having come from pent-up demand peters out.”

Highly Uncertain

Sentiment rose across all sub-indexes and confidence in the wholesale and retail sectors moved back into net positive terrain for the first time in more than two years in the fourth quarter, RMB said.

Still, the outlook for economic growth in 2021 and beyond is highly uncertain and could also be hamstrung by weaker-than-expected Black Friday and festive season sales, as well as renewed risks associated with the coronavirus pandemic, Le Roux said. Those include high levels of unemployment and the end of temporary income-support measures that the government provided to help people through the worst of the downturn.

To help stimulate an economy that’s projected to contract by the most in nine decades this year, President Cyril Ramaphosa announced earlier this month that normal trading hours for alcohol sales at retail outlets may resume for the first time since March 27 and international travel will open up to all countries.

The domestic outlook could benefit from a sustainable global recovery, strong demand for South African mineral exports and the resumption of international travel, Le Roux said. Activity in sectors linked to the supply-side of the economy, such as building and manufacturing, needs to improve to ensure that the upward trend in confidence lasts, according to RMB.