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Signs that bleak business conditions are at a turning point

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South Africa's improving business sentiment saw the Experian Business Debt Index (BDI) for the fourth quarter of last year register its first positive upturn since the third quarter of 2015.

The index recorded a sharp turnaround to 0.443 in the fourth quarter of last year from 0.059 in the previous quarter. This was also the BDI’s best reading since 2014.

Experian said the latest reading of improved business debt stress levels was encouraging and indicated that the bleak business conditions experienced since 2014 are reaching a turning point.

Eight out of the nine sectors recorded a positive BDI with mining and agriculture recording the most positive for business debt conditions.

Experian also noted a marked improvement in the construction industry.

The BDI for community services was also just in positive territory following the government’s cutbacks in spending as a precaution against further credit rating downgrades.

Simon Russell, the managing director of Experian SA, said the low levels of business confidence in 2017 contributed towards businesses holding off large-scale capital investments and rather building up solid cash flows instead.

“In the short term, it is worth noting that the recent changes to political leadership, which may influence the economic policy’s direction, have resulted in a significant improvement to business sentiment,” Russell said.

The ratio of loans outstanding for 30 to 60 days relative to that of less than 30 days decreased from 17.7percent in the third quarter to 15.8percent in the quarter under review. Aside from the fourth quarter of 2016, this was the lowest such ratio in a decade.

Earlier this month, the South African chamber of commerce and industry said that business confidence in January improved 3.3 index points to 99.7 points - moving closer to levels last seen before former finance minister Nhlanhla Nene was unceremoniously sacked in December 2015.

The business confidence index leaped from 96.4 points in December, reaching its highest level in two-and-a-half years.

Johann Els, the head of economic research at Old Mutual Investment Group, said the sustained improvement in business and consumer confidence would lead to better economic growth for 2018.

The International Monetary Fund (IMF) last month slashed South Africa’s growth forecast for the next two years.

The IMF said it expected South Africa's gross domestic product to grow by 0.9percent this year, down from an earlier projection of 1.1percent.

It also said the economy would grow 0.9percent in 2019, a downgrade of 0.7percent from prior estimates.


 

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