Boost for restaurants and hotels in South Africa
Despite declining business confidence in the other services sector, those in the hospitality industry are far more optimistic.
According to the latest other services survey results, business confidence in the other services sector decreased by 6 points to 42 in 2023Q4.
This implies that 60% of respondents are dissatisfied with prevailing business conditions.
This decline follows a slight increase in 2023Q3.
“Overall, average confidence in 2023 was much lower than in 2022. The Q4 decline in confidence was despite respondents recording an improvement in business conditions and higher business volumes, both being above their long-term averages,” the Bureau for Economic Research (BER) said.
The only subsector that saw increased confidence compared to Q3 was hotels and restaurants.
Confidence climbed by 7 points to 74 in 2023Q4.
“The increase in confidence was supported by an uptick in business conditions, greater business volumes, and higher selling prices,” the BER said.
“Confidence in this sector has steadily increased from a record-low of zero, measured at the height of the lockdown in 2020, to what is now an above-average confidence level.”
Confidence in the transport subsector declined by one point to 45, but it does remain close to its long-term average of 47.
“An improvement in business conditions and business volumes, as well as higher selling prices, bolster the relative strength in this sector. Still, sentiment is dragged down by non-activity factors such as crime,” the BER said.
Confidence amongst realtors steadily dropped to 8 points in 2023Q4, substantially down from the peak of 56 in mid-2022 and the lowest level since 2020Q2.
Although business conditions are declining, business volumes rose by one percentage point this quarter, even if they remain weak.
The main explanation for the disappointing picture in the subsector is the elevated borrowing costs due to high interest rates.
All the underlying activity and demand indicators (including expectations for Q1) dropped in the business services subsector, with confidence declining by 17 points to 42.
Analysis
“Except for the hospitality industry, results within the other services survey are in line with the
slight decline in the RMB/BER business confidence index and another good barometer for
overall subdued sentiment in the South African economy,” the BER said.
“The fourth quarter saw a six-point decline in confidence. Yet, the sharpest drop was between 2022Q4 and 2023Q1, which means the 2023 average confidence level is now almost 10 points below the 2022 average level and consistently below the long-term average.”
Business volumes have remained resilient and above the long-term average, primarily due to the better business volumes in the hospitality and transport subsectors, but this was not enough to create higher confidence across the different sectors.
“The general feeling that nothing fundamental has changed in the economy continues to restrain sentiment. On a positive note, a sustained moderation in consumer inflation and a modest cutting cycle
expected to start in mid-2024 may boost the local consumer and aid, among others, the suffering real estate sector.”
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