South Africa’s business mood recovers – but now faces Ukraine war risks

South African business confidence climbed in the first quarter as the negative impact of the coronavirus pandemic, power cuts and a three-week strike in the steel and engineering industry began to wane. The respite may be temporary because of supply shocks caused by the war in Ukraine.

A quarterly business confidence index compiled by FirstRand Ltd.’s Rand Merchant Bank unit and Stellenbosch University’s Bureau for Economic Research increased to 46 from 43 in the three months through December. That equals the index’s long-term average and “is a far cry from the 5-index-point low recorded at the height of the pandemic in 2020,” Johannesburg-based RMB said. The median of four economists’ estimates in a Bloomberg survey was 47.

The advance was driven by improvements in three of the five industries the index tracks — the vehicle, wholesale and manufacturing sectors, which were negatively impacted by the strike and intermittent electricity outages.

The biggest boost to sentiment came from new-vehicle dealers. Sales in the first two months of the year have been buoyant and beat economists’ expectations in February.

“Improved supply made for increased sales, but even so dealers could not fully satisfy demand as stocks remained below satisfactory levels,” RMB said.

As the lion’s share of results for the survey were submitted before Russia invaded Ukraine and the oil price surged past $120 per barrel, the war is likely to weigh on future sentiment, the investment bank said.

Crude has surged by almost a third since the start of the conflict to $130. Wheat prices have soared 50% in the past month to the highest level in 14 years, as shipments from one of the world’s biggest growing areas ground to a virtual standstill.

“The stagflationary shock brought about by Russia’s invasion of the Ukraine has now triggered a significant degree of uncertainty around global, and by implication, South Africa’s gross domestic product growth prospects,” said Ettienne le Roux, RMB’s chief economist.

“This is most unfortunate as it happens at a time when the economy seems to have been well on its way to a full recovery from the significant output losses incurred in 2020.”

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