March 17, 2004

By Quentin Wray

Johannesburg - Surging domestic demand, fuelled by last year's tax cuts and historically low interest rates, has pushed the Rand Merchant Bank/Bureau for Economic Research business confidence index (BCI) for the first quarter to its highest in more than 15 years.

Figures released yesterday show the BCI rose for the third consecutive quarter, to 69. It has more than recovered ground it lost in the first half of last year, when it fell to 50 - the point where as many businesses are optimists as pessimists.

The index is compiled quarterly from a survey of nearly 3 000 businesses in the manufacturing, building, retail, wholesale and motor trade sectors.

Rand Merchant Bank chief economist Rudolf Gouws said the improvement suggested economic growth would come in higher than the 1.3 percent quarter on quarter recorded in the last quarter of last year.

Growth started picking up in the latter part of last year, after a sharp fall in the first half. Statistics SA will release first-quarter growth data in May.

Gouws said the prospects for "somewhat higher" economic growth for this year as a whole were good.

Last year's interest rate cuts "would largely counter the impact of the relatively strong rand".

The economy grew 1.9 percent last year - its slowest in five years.

He said all sectors covered were in "net positive terrain" in the latest survey, and confidence levels had risen in four of five sectors. It had fallen in the retail trade sector, due to a fall in sales of non-durable goods. 

Sales volumes of semidurables such as clothing and footwear expanded in the quarter. Sales of durables, which include household furniture, appliances and electronic equipment, also rallied.

However, because sales of non-durables such as food, groceries and beverages - which make up the lion's share of retail sales - slowed, overall retailer confidence slipped to 65 from 68 in the fourth quarter of last year.

Gouws said the survey showed that the longest post-World War 2 economic upswing remained intact and that the 2003 decline in business confidence was, like the 2000 decline, a temporary deviation from the long-term upward trend.

He added: "The upswing has acquired its own momentum, which bodes well for economic growth over the next three to five years as it makes South Africa less dependent on the international economic cycle."

Gouws said manufacturing confidence, which suffered badly last year because of the rand's gains, was now at 55 - nearly where it was a year ago.

"Stronger domestic sales started coming to the rescue ... manufacturers are beginning to benefit from the strong domestic demand, but not yet from the improved global demand, because of the relatively strong rand."

Building confidence continued up with non-residential activity rising strongly. Residential activity stayed at last year's high levels.