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Standard Bank Group
The SA Daily 15 March 2018

Business confidence, and investment

  • BER business confidence for Q1:18 picked up to 45 pts, from 34 pts in Q4:17, closer to the 50-neutral point. But confidence is still well below pre-2009 highs.
  • There is a strong correlation between business confidence and gross fixed capital formation (GFCF); and, business confidence tends to lead GFCF by two quarters. While we expect the SARB to cut the repo rate by 25 bps this month, that in itself won’t improve business confidence. Business confidence is a function of not only interest rates but also factors such as global economic growth and domestic economic policy.
  • The extent to which stronger business confidence compels stronger private sector fixed investment will be a key determinant of the medium-term upside risk to SA economic growth.
  • Parliament having mandated an investigation into a possible constitutional amendment to effect land expropriation without compensation may renew uncertainty could delay the expected fixed investment recovery in the wake of recent political improvements. From a rand perspective, in the short term we expect little rand movement. A pickup in confidence should nevertheless be read as rand-positive on a multi-month basis.

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