Mixed bag for hotels and restaurants in South Africa

 ·27 Mar 2024

Although business confidence in the hotel and restaurant industries has dropped, it is still relatively high.

According to the Bureau for Economic Research’s (BER’s) latest other services survey, business confidence in the other services sector dropped by one point to 41 in Q1 2024.

This largely flat result comes despite lower business volumes and deteriorating business conditions.

Confidence in the other services sector is slightly better than seen in the RMB/BER Business Confidence Index (BCI), driven by relatively upbeat sentiment in the hospitality and business services subsectors.

“Business volumes and business conditions declined sharply, with significantly more respondents saying business volumes and conditions are worse than a year ago.,” the BER said.

“This may indicate a normalisation in this sector, as both business volumes and conditions come from a protracted period of above-average levels.”

Source: BER

Unlike the other subsectors, the business services subsector was positive in terms of both sentiment and volumes this quarter.

Sentiment in the business services subsector climbed by nine points to 51, with more than half of all respondents satisfied with prevailing business conditions. Business volumes also moved up and remained above the long-term average.

The real estate subsector also saw confidence improve (+8), even if it remained at an uninspiring 14 – well below the long-term average.

“This is reflective of the very low business volumes in this subsector. In fact, business volumes moved in the opposite direction compared to sentiment, plunging deep into negative territory this quarter,” the BER said.

Although sentiment is still high in the hotels and restaurants subsector, confidence dropped from 74 to 62 in Q1 2024.

“Business volumes in this subsector experienced an especially large setback, declining by 57 net percentage points to end the quarter at negative eight,” the BER said.

“It has not been below zero since the pandemic period ensued, signalling a post-recovery normalisation occurring in this subsector.”

Sentiment in the transport and storage subsector dropped seven points to 38 in Q1 2024. However, the subsector’s lacklustre mood is not historically low.

Like the confidence level, transport volumes also dropped sharply.

Outlook

“The first quarter experienced a modest decrease in confidence, but both business volumes and conditions deteriorated much more,” the BER said.

“This represents a challenging start to the year, yet not all hope is lost, as there are some positive risk factors poised to bolster services throughout the rest of the year.”

The BER said that the other services sector could benefit from relatively lower inflation and the high probability of interest rate cuts later this year, as this would provide potential consumer relief.

“In a strategic move to enhance South Africa’s logistics scene, the government has recently appointed a new, market-oriented leader for Transnet, signalling their commitment to positive changes. These efforts should contribute to improved business conditions, especially in the transport subsector.”

That said, political uncertainty linked to the upcoming national elections remains a risk in the near term.


Read: SARS issues last-minute tax deadline warning for South Africans

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