Business confidence rebounds in first quarter
March 17, 2006
By Nasreen Seria
Johannesburg - Business confidence rebounded in the first quarter as the lowest interest rates in 25 years fuelled consumer spending on cars, houses and furniture.
The business confidence index rose to 86 from 85 in the previous three months, according to a survey by Rand Merchant Bank (RMB) and Stellenbosch University's Bureau for Economic Research. The index reached a 24-year high of 87.6 in the fourth quarter of 2004.
The Reserve Bank has cut its benchmark interest rate seven times since June 2003, boosting consumer and business spending and helping to lift economic growth to a 21-year high of 4.9 percent last year.
The increase in confidence indicated that growth, which slowed in the three months to December, might have rebounded this quarter, Rand Merchant Bank said.
"The rise in business confidence in general, and manufacturer confidence in particular, suggests that economic activity did not moderate further in the first quarter of 2006," the bank said. "South Africa remains set to experience buoyant economic growth this year."
Confidence among manufacturers jumped to 72 from 68 last quarter as some took advantage of surging consumer spending to switch from exports to supplying the local market, RMB said.
The rand has gained 93 percent against the dollar since the end of 2001, reducing the competitiveness of exports.
"Local manufacturers of consumer goods now also appear to be benefiting from the consumer spending boom," said RMB.
"It may be that some manufacturers are switching their focus to the strong domestic market, and away from exports."
Sentiment among car dealers rose to a record 99 this quarter, reflecting buoyant demand for new vehicles.
The National Association of Automobile Manufacturers of SA said vehicle sales, which surged 26 percent to a record 565 018 units last year, would probably increase 10 percent this year.
Building contractors' confidence rose to a record 94 as low interest rates fuelled a housing boom and companies expanded factories and offices.
House prices rose an annual 14.5 percent in February, Absa Group, the country's biggest mortgage lender, said last week, while the Cement and Concrete Institute said in January that cement sales surged 11 percent to a record 12.98 million tons in 2005.
The Reserve Bank kept the repo rate rate at 7 percent last month, citing an improved inflation outlook after the rand gained against the dollar. The bank's monetary policy committee will make its next interest rate decision on April 14.
"With interest rate hikes unlikely this year, confidence should remain strongly positive," RMB said.
The business confidence survey is based on interviews with 3 000 companies. - Bloomberg
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