<strong>By: <i>Lullu Krugel, PwC Strategy& Chief Economist for Africa, and Christie Viljoen, PwC Strategy& Economist</i></strong>

<h2><b><i>Business confidence index unchanged in 2019Q2</i></b></h2>

<b><i>Improvements in</i></b> <b><i>building, retail and wholesale environments outweighed by deteriorated sentiment in manufacturing and vehicle sales</i></b>

<span style="font-weight: 400;">The Bureau for Economic Research (BER) reported on June 13</span><span style="font-weight: 400;">th</span><span style="font-weight: 400;"> that </span><b>South African business confidence remained pessimistic during the second quarter of 2019, with more than seven out of ten businesses unsatisfied with prevailing operating conditions. </b><span style="font-weight: 400;">The Rand Merchant Bank (RMB)/BER Business Confidence Index (CCI) was unchanged from the first quarter at a reading of 28 – this is significantly lower than the break-even level (between positive and negative sentiment) of 50. The BER commented in its report (available </span><a href="https://www.ber.ac.za/BER Documents/BER-press-release/?doctypeid=1068"><span style="font-weight: 400;">here</span></a><span style="font-weight: 400;">) that sentiment has seldom been this negative since the global financial crisis. </span>

<img class="aligncenter size-full wp-image-138937" src="https://www.cover.co.za/wp-content/uploads/2019/06/Screenshot-2019-06-18-at-08.23.16.png" alt="" width="481" height="258" />

<i><span style="font-weight: 400;">Source: BER</span></i>

<span style="font-weight: 400;">According to the BER, improvements in the building, retail and wholesale environments were offset by deteriorated sentiment amongst manufacturers and retailers of new vehicles. Building confidence increased by 7 index points to a still-weak reading of 30, reflecting the scarcity of new work available to builders. Several of the country’s large construction companies have filed for bankruptcy over the past year. Builders are planning to trim their workforce going forward after the construction industry already shed 142,000 jobs in the first quarter of 2019 – a decline of nearly 10% compared to 2018Q4. </span>

<span style="font-weight: 400;">Retail and wholesale confidence both improved but remained in negative territory due to weak sales volumes across the spectrum. Statistics South Africa reported on June 12</span><span style="font-weight: 400;">th</span><span style="font-weight: 400;"> that real retail sales declined by 0.3% in February–April compared to the previous three-month period. Shortly after the BCI survey period concluded on June 3</span><span style="font-weight: 400;">rd</span><span style="font-weight: 400;">, the retail sector was also hit by a preliminary report published by the Competition Commission highlighting a combination of features in the domestic retail sector that may prevent, distort or restrict competition. This would have stirred concern amongst retailers about future action by the commission. </span>

<span style="font-weight: 400;">Manufacturing confidence declined to its lowest level in 2019Q2 since late-2017. Statistics South Africa reported on June 11</span><span style="font-weight: 400;">th</span><span style="font-weight: 400;"> that local manufacturing production declined by 1.1% in February–April compared to the previous three-month period. The Absa Purchasing Managers’ Index (PMI) for May 2019 reported that, despite a recent decline in production prices, factory output has certainly not impressed this year so far. Soft domestic demand for manufactured goods and producers reducing their inventories have weighed on manufacturing activity. In turn, the value of new and used vehicle sales declined by 2.5% in 2019Q1 compared to the previous three-month period.</span>

<span style="font-weight: 400;">The survey for this edition of the BCI was conducted before the release of disappointing gross domestic product (GDP) data in early June, and business sentiment would likely have been worse if measured after the economic data was published. This suggests that heading into the third quarter, there is very little in the way of economic data that could stimulate business confidence. From a political perspective, the appointment of a new Cabinet and the upcoming State of the Nation Address (SONA) will refine businesses’ sentiment towards where the economy is going as the year progresses. Nonetheless, policy uncertainty will continue to haunt the private sector in general. </span>