Business confidence edges higher in Q3, but interest rate sensitive sectors struggle

After falling to 27 in the second quarter of 2023, the RMB/BER Business Confidence Index (BCI) regained some ground to register a level of 33 in the third quarter. Although higher, sentiment is still very weak. Indeed, the current level of the index suggests that two-thirds of respondents are dissatisfied with prevailing business conditions.

The challenges posed by relatively high interest rates, the resultant strain on consumers, and social unrest meant that business activity remained constrained. Encouragingly, the slight reprieve in the incidence of load-shedding provided support to some firms, especially in manufacturing.

Figure 1: RMB/BER Business Confidence Index


Source: BER, SARB (Shaded areas represent economic downswings)   

The second quarter survey was conducted by the BER between 16 August and 31 August 2023. The survey covered 1 050 senior executives in the building, manufacturing, retail, wholesale, and motor trade sectors.


Of the sectors surveyed, only building contractors saw a decline in sentiment in the third quarter of 2023. However, at 41, builders remain more upbeat than other respondents.

The biggest fall in sentiment last quarter was among the consumer-facing sectors, namely new vehicle dealers and retailers. Both rebounded this quarter. The business confidence of retailers gained 12 index points to reach 32. Overall, sales remained weak while profitability improved on the back of softer purchasing price increases. Interestingly, the index measuring the rate of selling price increases also fell significantly and is now at its lowest level since 2020Q3. In terms of the sub-segments, the confidence of non-durable and semi-durable goods retailers was at its best level this year. Meanwhile, sentiment among durable goods retailers deteriorated further. This trend is mimicked in the measure for growth in sales volumes, which saw a steep decline. Wholesaler confidence was up 6 points to 38 even though the sales volumes of consumer goods continued to struggle. Similarly, new vehicle dealer confidence moved higher to 30 (from 23 in the second quarter of 2023), despite a further deterioration in sales and orders placed, while stock levels remain elevated.

At 23 (from a level of 17 in the first and second quarter of 2023), the business confidence of manufacturers remains the lowest among the sectors included in the composite index. The underlying results, however, are not as downbeat as the sentiment reading suggests. Total production is close its long-run average, led by improvements almost across the board. This is likely due to the less frequent load-shedding over the past few weeks compared to much of the first half of the year, and a return to production in industries that had recently experienced other non-energy-related disruptions. Growth in exports was also significantly up. On a less positive note, production costs remain elevated, so too the rating of new demand and the political environment as business constraints. In all, the results from the manufacturing sector are somewhat encouraging, even though sentiment is weak.

Building work gathered further momentum in the third quarter of 2023. Despite this, building contactor confidence slipped to 41, from 43 in the second quarter of 2023. The business constraints related to the availability of building materials and new work remained quite elevated, likely weighing on sentiment.

Many of the respondents’ comments again related to the impact of load-shedding, but this quarter the taxi strike in the Western Cape was also mentioned frequently – and to a lesser extent the N3 truck attacks. There is no doubt that this had a detrimental effect on the economy in the third quarter of 2023. While some sectors were likely more affected than others, respondents lamented the lack of production due to staff shortages as well as the cost of having to repair damages. The confidence of executives in the Western Cape nonetheless gained 4 points to record a level of 35, but it would likely have been higher if not for the disruption.

Second quarter GDP growth has continued to surprise on the upside, expanding by 0.6% q/q seasonally adjusted from 0.4% in 1Q23. This affirms the underlying resilience in the economy, particularly in sectors such as manufacturing where load shedding tends to have a bigger impact on activity. Indeed, investment in machinery and other equipment, within which renewable investments are captured, continued to expand in the second quarter despite the low business confidence, suggesting continued building of resilience against load shedding. 

Bottom line

In all, the key messages from this set of results are:

  • Interest rate sensitive sectors are suffering as reflected by downbeat sales among durable goods retailers, new vehicles dealers, and to a lesser extent wholesalers of consumer goods.
  • Manufacturing production rose within the reduced load-shedding environment.
  • Core consumer inflation (headline inflation excluding food and energy) is set to remain on an easing trajectory in the third quarter of 2023. However, firms are not yet passing on all of the lower producer prices on to consumers.
  • From the comments it is clear that the Western Cape taxi strike weighed on activity in the region.
  • Lastly, activity growth in the building sector is looking more sustained.
  • Lastly, activity growth in the building sector is looking more sustained.

“The headline result of the 2023Q3 RMB/BER Business Confidence Index suggests that the economic malaise affecting South Africa in preceding quarters continued into this one. On deeper inspection, however, there are different forces at play with manufacturing production and building activity improving, but interest rate sensitive sectors that are distressed. Looking ahead, it will become increasingly important to also consider the impact of unrest, such as recently seen in the Western Cape, on South Africa’s economic fortunes in the run-up to the national elections next year,” remarked Isaah Mhlanga, Chief Economist and Head of Research at RMB.