Signs of life for businesses and consumers in South Africa
Although sentiment for both consumers and businesses in South Africa has remained depressed, there have been widespread improvements in confidence levels.
The FNB/BER Civil Confidence Index jumped marginally from 41 in Q2 2023 to 43 in Q3 2023.
“Even though the majority of respondents are still dissatisfied with prevailing business conditions, the current reading is above the long-term average,” the FNB said.
This optimism aligns with the real value of construction works growing to 6% and 6.6% year-on-year in Q1 and Q2 2023, respectively. The survey results for Q3 show continued improvement even if the pace is starting to slow slightly.
“It is also important to appreciate that although the recent growth in construction works fixed investment is most welcome, real outlays remained more than 9% below the pre-COVID (4Q2019) level in Q3 2023,” FNB said.
Better activity also supported overall profitability, with more work reducing competition between contractors. The index measuring tender price competition was also at its lowest level since 2014.
The outlook for Q4 has also boosted sentiment, which is reflected in the decline in the rating of the lack of new demand as a business constraint.
“Civil construction activity has risen noticeably over the last few months on the back of investments in renewable energy, but also more tendering activity related to roads and water infrastructure in general,” said Siphamandla Mkhwanazi, Senior Economist at FNB.
“This has boosted profitability and has resulted in a meaningful reduction in tendering price competition. Encouragingly, there are signs that the level of activity will be maintained, at least over the short term.”
“However, given the sector’s reliance on public infrastructure spending, the recently recommended Treasury spending cuts could dampen some of the recent optimism. This is in addition to possible further generalised economic weakness.”
Widescale improvement
Although sentiment remains low across several of the BER’s surveys, there has been a general tick-up due to an improvement in the underlying economic conditions following a disappointing end to 2022.
For instance, FNB/BER Consumer Confidence Index (CCI) grew from -25 in Q2 2023 to -16 in Q3.
High-income households – those with earnings of more than R20,000 – also saw their confidence levels grow passively from -40 in Q2 2023 to -17 in Q3, with consumers heartened by a decline in load shedding, further investment in alternative power and diminished tensions with the West.
Despite the majority of respondents remaining dissatisfied with prevailing business conditions, the FNB/BER Building Confidence Index did at least grow from 28 points in Q2 2023 to 34 in Q3 2023.
“The non-residential property market remains weak, characterised by, among other things, still high national office vacancy rates and constraints on the manufacturing and retail sectors, which drive demand for industrial and shopping space,” Mkhwanazi said.
“Despite this, new building activity is robust, and order books are looking more promising. Several factors, including possible ongoing retrofitting of office space post-COVID and to deal with the energy crisis, semigration of firms to the Western Cape, and low technical base effects are contributing to this resurgence in non-residential building activity.”
Furthermore, the RMB/BER Business Confidence Index (BCI) grew from 27 in Q2 to 33 in Q3.
“The challenges posed by relatively high interest rates, the resultant strain on consumers, and social unrest meant that business activity remained constrained,” RMB said.
“Encouragingly, the slight reprieve in the incidence of load-shedding provided support to some firms, especially in manufacturing.”
This could be seen in the Absa Manufacturing Survey, which increased by 6 points to 23 on the back of better business conditions, supported by an improvement in energy supply.
The Others Services Survey may still have been below its long-term average of 52, but it did at least improve from 43 points in Q2 to 48 points in Q3.
The hospitality subsector had the highest confidence of any of subsector, climbing from 52 points to 67 points, with restaurants benefitting from the effects of load shedding on home cooking.
The BER’s Retail Trade Survey also saw an improvement from 20% in Q2 to 32% in Q3
“Although load-shedding remains a harsh reality, inflation has moved to within the target band so far in quarter three,” the BER said.
“For the first time since November 2021, the SARB did not hike the policy rate at its July meeting. These factors likely contribute to the improvement we see in retail confidence.”
Average five-year inflation expectations also dropped from 5.6% in Q2 to 5.1% in the BER’s Inflation Expectations survey. Analysts, businesses and trade unions also all expect better salaries to be paid in 2024.
| Survey | Q2 2023 | Q3 2023 | Change |
| FNB/BER Civil Confidence Index | 41 | 43 | +2 |
| FNB/BER Consumer Confidence Index | -25 | -16 | +9 |
| FNB/BER Building Confidence Index | 28 | 34 | +6 |
| RMB/BER Business Confidence Index | 27 | 33 | +6 |
| Others Services Survey | 43 | 48 | +5 |
| Retail Survey | 20% | 32% | +12% |
| Absa Manufacturing Survey | 17 | 23 | +6 |
| Inflation Expectations (Five Year) | 5.6% | 5.1% | -0.5% |
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