South African businesses showed signs of renewed confidence in May as fears over soaring fuel costs linked to the Middle East conflict eased, although weak domestic industries and rising operating expenses continue to cloud the country’s economic outlook.
The South African Chamber of Commerce and Industry business confidence index rose slightly by 0.5 points to 124.1 in May, recovering modestly after a sharp fall of 7.7 points in April. Compared with the same period last year, confidence was 8.3 points higher.
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The improvement was largely driven by stronger new vehicle sales and higher merchandise export volumes. However, lower numbers of overseas visitors and increasing inflation continued to weigh heavily on business sentiment.
“Between March and April, the decline of 7.7 index points was considerable. It, however, appears that the negative sentiment caused by the recent soaring crude oil price subsided somewhat in May,” Sacci said.
Despite recent positive assessments by ratings agencies Moody’s and Fitch, Sacci warned that South Africa remains vulnerable to the economic consequences of the Middle East conflict, particularly higher fuel prices that are increasing the cost of doing business.
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“Apart from global developments, South Africa has to deal with wavering domestic economic performance and structural economic adjustments,” the chamber said.
It noted that key sectors including retail, manufacturing, construction and mining are struggling to perform at their full potential due to ongoing constraints, limiting stronger gains in business confidence.
A separate survey of around 700 manufacturers conducted by Absa and the Bureau for Economic Research also showed a slight improvement in sentiment, with second quarter confidence rising by one point to 31.
Manufacturers were encouraged by stronger export sales and improved prices in both local and international markets, even as business conditions became more difficult and production costs climbed.
“Given the global shifts and uncertainty related to the ongoing conflict in the Middle East and the associated impact on Brent crude oil and fuel prices, the survey outcome is a pleasant surprise,” said Sachin Chanderdhev, a sector specialist for manufacturing at Absa Business Banking.
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However, Chanderdhev cautioned that higher shipping expenses, disrupted trade routes, rising transport costs and broader inflationary pressures will continue to create a difficult environment for manufacturers.
The survey showed that production costs increased sharply during the quarter, with unit costs rising by 18 points.
Facing an 8.76 percent increase in electricity tariffs from April, many manufacturers are now reconsidering their energy strategies, including a faster shift towards renewable energy.
“The decision to migrate to renewable energy may be accelerated, particularly for manufacturers who rely on diesel backup generation and are facing significantly higher fuel costs,” Chanderdhev said.
