South African business confidence fell deeper into negative territory in the second quarter, to a level not seen since the 2009 recession, a survey showed on Wednesday, as persistently weak business activity and concerns over politics weighed.
The Rand Merchant Bank (RMB) business confidence index compiled by the Bureau for Economic Research fell to 29 points in the second quarter from 40 points in the first quarter, remaining firmly below the 50-mark separating the net positive and negative territories.
South Africa sank into recession for the first time in eight years in the first quarter, hit by weakness in consumer sectors such as wholesale, retail and accommodation.
The latest survey results suggest seven out of every 10 respondents are downbeat about prevailing business conditions, suggesting year-on-year economic growth slowed even further in the second quarter, RMB said.
“In fact, given the severe strain many industry respondents (and consumers for that matter) are under, a contraction in GDP for the year as a whole is not inconceivable,” RMB said in a statement.
Unlike the 2009 recession, when authorities eased fiscal policy and aggressively cut rates to counter the decline in economic growth, RMB sees “no easy options” this time to restart economic growth.
“Given sovereign credit rating pressures, providing fiscal stimulus is not an option. And while it is not impossible for the Reserve Bank to lower rates, a deep-cutting cycle is most unlikely given the rand’s vulnerability to various global as well as domestic risks,” RMB added.
Ratings agency Moody’s downgraded South Africa’s credit rating but kept it at investment grade with a negative outlook, citing a recent abrupt cabinet reshuffle and reduced growth prospects for an economy mired in recession.
South Africa relies heavily on foreign money to cover its large budget and current account deficits but could struggle to attract investment if political tensions linger on and economic growth does not return.
Reuters
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