Confidence at new low as SA feels the pinch

By Staff Writer

From Business Day, 16 April 2008

By Mariam Isa
Economics Editor

A market sentiment index compiled by TNS Research Surveys fell by 18 points
since November to 127 - its lowest level since mid-2003 and marking the
sharpest drop since the index was launched in 2002.


"People are feeling the pinch now and they are also expecting things to get
worse," said Neil Higgs, TNS director for Innovation and Development in SA.

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"There's a big difference in how they felt last November and how they feel
now. What we are seeing is that people in general believe business conditions
will go down this year, with a knock-on effect on their personal
circumstances," he said.


The mood was possibly also tarnished by a perceived split in the leadership
of the African National Congress after elections in Polokwane , he said.


"There appear to be two centres of power. P eople don't know where things are
going and uncertainty is the harbinger of pessimism."


Higgs said sentiment was unlikely to improve in the near term as the February
survey of 2000 people was carried out before Eskom announced it wanted to
double electricity prices in the next two years.


If the National Energy Regulator of SA approves the increases, they will feed
into inflation and may prompt more rate hikes, which would add to concerns
about the slowing economy and job security .


The market sentiment index backs the message from other surveys showing that
business and consumer confidence is retreating in the face of global financial
turmoil, soaring inflation, the rising cost of debt and local power constraints.


According to the Bureau for Economic Research, business confidence slumped to
a seven-year low in the first quarter , showing the steepest slide in 24
years. But it is important to put the downturn into context. The economy has
grown more than 5% over each of the past four years, above the pace it can
sustain without sparking capacity constraints and inflation.


"I think there are a lot of people finding times a lot tougher than they did
18 months ago - it's a question of how that's going to translate into real
earnings on local equities," said ETM economist Russell Lamberti.


"Retailers are definitely in for a difficult year. But I'm not all that
convinced that economic sentiment is that bad as we are seeing very strong
fixed investment spending," he said.


Consumer spending, the economy's main growth engine, is slowing in response
to a 4,5% increase in interest rates since the middle of 2006, which has sent
prime lending rates to 15%.


But investment has helped pick up some of the slack, spurred in part by a
massive official infrastructure spending programme.

Real gross fixed capital formation, a key investment indicator, rose 14,8%
last year, quickening from 13,8% the year before. It has notched up double-
digit growth for 10 quarters in a row.

Nevertheless, some analysts say the private component of investment, which
accounts for most of the total, is starting to recede in the face of soaring
costs and slowing demand.

"If the private sector spends less on investment this year it will definitely
make a footprint on growth," said Standard Bank economist Danelee van Dyk.

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