South African economy is better off than others, RMB

Zweli Mokgata

Zweli Mokgata

While confidence in South Africa's economy continues to fall, the country is still better off than other economies, Rand Merchant Bank (RMB) said yesterday.

According to the bank, the six index point drop in the Business Confidence Index for the first quarter of this year, implies that only about a quarter of respondents rate prevailing business conditions as satisfactory.

The index declined from 33 points in the last quarter of last year to 27 this year.

This is the lowest level that the index has fallen to in the past 10 years, but well above all time lows experienced in 1978 when it fell to 23 points.

RMB chief economist Rudolph Gouws said sentiment about the economy amongst business people was still hopeful due to several positive recent developments.

"We thought the index would fall further given the strain the economy is under," Gouws said. "Our situation wasn't as bad as in some countries. Our banking system is in much better shape than in other countries.

"Banks have tightened their credit criteria, but there is still growth in total lending this year, while banks in the US and Europe have stopped lending altogether."

Among the factors that are keeping a shred of positive feeling towards the economy are:

l The country's well regulated banking system

l A R2.35 drop in the petrol price between November and February

l A relatively stable rand exchange rate

l The recent 150 basis point fall in interest rates since December and expectation of further declines.

According to RMB, it will take another 12 months before easier monetary policy starts to lift investments and other sectors sensitive to interest rates such as durable goods (like furniture and vehicles) and construction.