South African business confidence edges higher amid war headwind

South African business confidence improved sightly in July, though the economy continues to be affected by inflationary pressures stemming from the Iran war, the country’s main commerce chamber cautioned.

A measure of sentiment compiled by the South African Chamber of Commerce and Industry increased to 125.4 from 123.5 in June, it said in an emailed statement Tuesday.

“The continuing war in the Middle East and its destabilising effect on the crude oil price as well as its impact on the supply of fuel are weighing on global economic prospects,” Sacci said. “It’s not only the inflationary impact, but also the disturbance of trade and spending patterns that is impeding economic activity.”

The conflict in the Middle East initially triggered a surge in oil prices when it erupted in late February, pushing up the cost of fuel in South Africa and prompting the central bank to raise interest rates in May to lean against higher price growth. Domestic inflation accelerated to 5% in June — the fastest pace in two years and above the central bank’s 3% target with a one percentage point tolerance band either side.

“A stricter Reserve Bank monetary policy stance and slow economic growth emphasise the impact of the uncertainty created by the present inflationary process,” Sacci said. “The action of the Reserve Bank to contain inflation is a necessary policy instrument to ensure that the real effect of price instability is addressed.”

The monetary policy committee kept rates on hold when it met last month to monitor price pressures. Forward rate agreements, which are used to speculate on borrowing costs, are pricing in a 72% chance of the benchmark rate — currently at 7% — rising 50 basis points by the end of the year.

The biggest positive contributors to the Sacci reading in July were new-vehicle sales, export volumes and softer energy prices, while higher inflation and lower precious metal prices were negatives.

“The number of overseas tourists remains a major positive driver for business confidence,” it said.

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