The RMB/BER Business Confidence Index (BCI) increased by a minuscule two points to 40 in the first quarter of 2017. This means only four out of every 10 respondents were satisfied with business conditions. Since 2008 the BCI has only been above the neutral 50 mark on four occasions - a pattern consistent with an economy continuously treading water.
The fieldwork for this survey took place between 15 February and 7 March. Questionnaires were sent to about 1600 regular participants covering all firm sizes of the five most cyclical sensitive sectors of the economy.
Business confidence edged higher in three sectors while it eased in the remaining two. In the retail trade sector, the first quarter increase more than countered the fourth quarter decline. Confidence also crept higher in the wholesale and motor trade sectors, but declined in building and manufacturing. Worrying is the reality that since 2015 the RMB/BER BCI has remained almost entirely in net negative terrain in all but one sector i.e. the wholesale trade (where sentiment has held above 50 for 80% of the time). Pessimism seems to be widely spread indeed.
From an overly low level in the fourth quarter, confidence among retailers increased to 45 points in the first quarter. Despite the index jumping by 11 points, a majority of respondents clearly still remained unsatisfied with business conditions, and rightly so. Growth in total retail sales volumes is showing few signs of life, and in some instances it’s even contracting, with the rate of increase in selling prices slowing quickly on a broad basis. After a brief period of some relief, pressure on margins has consequently returned. Retailers of discretionary products continue to bear the brunt of consumers’ strained finances.
Despite a four point increase, new vehicle dealer confidence remained at a depressingly low 30. This outcome is unsurprising given the continued contraction in sales volumes and the recovery respondents had “hoped for” in the fourth quarter which subsequently never materialised.
Wholesale confidence bounced back from 53 to 56 in the first quarter. Despite this small improvement, all is not well below the surface, especially for wholesalers of consumers goods where confidence fell back into negative terrain. Sentiment among wholesalers of non-consumer goods (such as machinery, chemicals and building materials) improved notably, and so saving the day.
In contrast to retailers, new vehicle dealers and wholesalers, sentiment among manufacturers deteriorated marginally to 28 in the first quarter. Export sales volumes continued to improve, but the recovery fell short of countering the impact of persistently weak domestic demand (and other uncertainties). It’s worrisome that since it last peaked at 51 in 2011, manufacturing confidence has been in a constant downward trend for six years.
Building confidence declined by six points to 42, as the improvement in residential activity during the second half of 2016 fizzled out, and non-residential activity contracted at an even faster pace.
Business confidence has failed to inspire for some time and the first quarter of 2017 was no exception; a two point increase in the RMB/BER BCI to a still low 40 is hardly reason to cheer. With the exception of a few industries which are benefitting to some extent from the revival in agriculture, mining and manufacturing exports, the overriding message from the first quarter survey results would seem to be one of continuously weak underlying activity with most sectors still in a holding pattern. “It’s concerning that respondents continue to show little, if any increased willingness to ramp up fixed investment as well as headcount. This is a bad omen for a country in desperate need of a growth kicker to so help safeguard its investment grade sovereign credit rating,” said Ettienne le Roux, chief economist of RMB.