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Business Confidence declines in June

South Africa's Business Confidence Index declined by 0.3 index points in June, dropping below the level of a year ago.

Releasing the June Business Confidence Index (BCI) on Tuesday, the South African Chamber of Commerce and Industry (SACCI) said the BCI declined by 0.3 index points in June 2018 and measured 93.7 compared to 94 in May 2018.

For the first time this year, the BCI was below the level of a year ago, namely 1.2 index points lower than the 94.9 in June 2017, said the BCI.

SACCI noted that the average for the BCI in the first six months of 2018 was 97.6, compared to the average of 95 in the first half of 2017, and 93.7 in the second half of 2017.

Four of the 13 sub-indices of the composite SACCI BCI positively affected the business climate on a month-on-month basis in June, while two sub-indices were neutral. Meanwhile, seven sub-indices reflected negativity in the business environment.

The biggest negative month-on-month influences on the business climate were the weaker trade-and-investment-weighted rand exchange rate, lower real retail sales, the decreased real value of building plans passed, and the higher, less stable, cost of energy supply.

Higher merchandise import and export volumes and increased new vehicle sales made positive month-on-month contributions to the business climate.

Increased new vehicle sales, lower inflation and the increased real value of building plans passed, were the sub-indices that contributed positively to the SACCI BCI year-on-year in June 2018.

Government debt

SACCI noted that there were indications that although fiscal challenges remain, government debt is showing signs of being contained, albeit at a high level.

Rating agencies suggest negative factors are mitigated by government's debt structure, and a sound banking sector. Financial challenges of state institutions, however, remain substantial and government debt must be stabilised.

SACCI noted that South Africa has of late experienced a sharp weakening in the balance of payments position (BoP). This has resulted in a larger deficit on the current account, as well as net selling of bonds and shares by non-residents. This led to additional volatility and weakening of the rand exchange rate.

In its June Quarterly Bulletin, the Reserve Bank announced that South Africa's current account deficit widened to 4.8% in the first quarter of 2018.

SACCI said the risk of trade wars has alerted certain industries in the country.

They [industries] have already indicated it would affect industries and employment negatively, while knock-on effects have been cited by complementary industries and their export performances.

It has become imperative that structural economic matters hampering inclusive economic growth should be addressed with economic rationality. Uncertainties surrounding economic policy direction and position should be clarified so that investor and business confidence can reaffirm itself, said SACCI.

Source: South African Government News Agency

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