RMB: Trump's aid cut announcement weighs on business sentiment in SA

The latest RMB-BER Business Confidence Index for South Africa remained steady at 45 points in the first quarter, just slightly above the long-term average of 43. While this indicates that more businesses are still pessimistic about the current economic conditions, it is worth noting that the level of pessimism has decreased compared to a year ago. John Cairns, the Head of Research at RMB, provided insights into the index, highlighting that the business confidence has not seen a significant change since the fourth quarter of last year. The Gini has had some positive impact on the sentiment, with certain sectors such as the motor vehicle industry showing signs of increased optimism. On the other hand, sectors like manufacturing and building remain weak, reflecting a mixed sentiment across different industries. Despite some improvements in specific sectors, overall business confidence has not reached a high level of optimism. Cairns also pointed out that building contractors, a key indicator of household intentions and industry performance, have remained positive about future activities but are somewhat disappointed with current conditions. The recent GDP figures supported this sentiment, showing a decline in construction and business investments, along with struggling residential investments. Notably, there is some optimism on the demand side, particularly in the consumer-driven sectors like retail and motor vehicles, influenced by lower interest rates. However, this optimism has yet to translate into a widespread economic recovery. The survey period coincided with Trump's executive order on South Africa and the return of load shedding, but business confidence did not experience a significant negative impact. Looking ahead, Cairns acknowledged the possibility of diminishing political uncertainty on the local front as the government works to resolve issues. However, global political concerns, particularly related to Trump's policies and potential trade wars, could continue to cast a shadow on business sentiments. In the context of Trump's policies, Cairns discussed the inflationary impact in the US but noted that this might not necessarily spill over to South Africa. Regarding potential tax hikes, he expressed doubt about a VAT increase in the upcoming budget, suggesting that the government may focus on cutting expenditure in other areas. Cairns also highlighted the slow progress of the reform agenda in South Africa, emphasizing the need for sustained efforts to boost economic growth. While some positive reforms are in place, including industry-linked investments and policies, the pace of implementation remains a concern. RMB retains a cautious optimism, projecting a modest economic growth of 1.9% for the year but signaling the need for accelerated reforms to drive a more robust recovery. Despite challenges both domestically and globally, Cairns remains hopeful that sustained efforts and prudent policies can lead South Africa towards a path of economic stability and growth.