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Interest rates, tighter credit lending rules, power crisis and higher inflation affected business
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March 12, 2008, 13:15
South Africa's business confidence fell sharply to a seven-year low in the first quarter of 2008, as the sector fretted about an uncertain economic and political outlook, a survey released today found.
The Business Confidence Index, sponsored by Rand Merchant Bank (RMB) and the Bureau for Economic Research (BER), fell by 19 index points to 48, the largest margin by which it has dropped since the third quarter of 1988.
"The sharp fall in business confidence ... reflects a deepening slowdown in business volumes, profitability coming under pressure, as well as increased economic and political certainty," the sponsors said in a statement.
Business volumes
The survey found that interest rates, tighter credit lending rules, an electricity shortage and higher inflation all affected business volumes.
The central bank raised interest rates by 400 basis points between June 2006 and December 2007 in an effort to arrest CPIX inflation, which galloped further away from the upper end of a 3-6 % target band to 8.8 % year-on-year in January.
Rules governing the issuing of loans were also tightened in June last year to curb heavy household indebtedness.
South Africa has experienced power cuts since January, when some of the country's biggest mines were forced to close down for five days. State-owned power firm Eskom has said the electricity shortage would last until 2013.
"(The blackouts) might have forced business to put contingency plans in place and reconsider expansion and the upgrade of plants," RMB, BER said.
ANC conference
The confidence survey was the first conducted after the ruling ANC's conference in December at which Jacob Zuma - who is facing corruption charges and enjoys wide support from unions and communists - was elected new party president.
"The leadership change has increased uncertainty about the direction economic policies will take in future," RMB, BER said.
The percentage of manufacturers who rated the political climate as a constraint rose to 49%, from 34% previously. The sponsors said the survey pointed to slower economic growth this year.
The economy grew 5.1 % last year, according to preliminary data from Statistics South Africa, down from a near-three decade high of 5.4% in 2006. The national treasury says growth will slow further to 4 % in 2008. - Reuters
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