Ayanda Shezi

Economics Correspondent

FOR the fourth consecutive month SA’s business confidence remained largely unchanged near six-month highs yesterday, on the back of low interest rates and low inflation, which have combined to spur consumer demand.

The latest survey by the South African Chamber of Business (Sacob) showed that the business confidence index fell to 127 points last month, from 127,2 in April.

Sacob economist Richard Downing said a strong rand had “put a dent” in the manufacturing sector, and that it would take a while for the sector to pick up again.

“The immediate future is negative for the index, but it will be counter-balanced by a pick-up in manufacturing output later in the year,” Downing said.

A weaker rand could boost the manufacturing sector, whose exports have become uncompetitive because of the rand’s strength. But it could also put pressure on inflation, leading to rates remaining steady until at least the end of the year.

SA’s high real interest rates have been cited as key to the rand’s strength over the past three years by making local interest-bearing assets attractive to foreign investors.

The rand was trading at R6,63 against the dollar yesterday, up 1,5% from its previous close as the dollar gave up some of its gains.

Downing warned that business confidence could be dented if an “inconsistent and impulsive” (monetary) policy environment sets in.

“A consistent and transparent policy approach remains of paramount importance to avoid damaging the level of business confidence that has been achieved.”

Investor confidence remains the “ultimate aim” to achieve an “acceptable” level of sustainable economic growth, he said.

Sacob said May’s results could imply that the confidence index had reached a plateau, from which it may drift downwards.

The index set a record high in September last year at 130,9 points.

But investment levels remain low due to SA’s modest savings rate. “(Investment levels) must pick up more vigorously in order for the economy to achieve growth levels of 6% and higher,” Downing said.

SA has one of the lowest savings rates in the world, with figures released last month by the South African Savings Institute showing that savings in December last year stood at 13,5% of gross domestic product, rather than the 20%-plus needed to boost growth.

Downing said the Absa-Barclays deal potentially could have positive spin-offs for the economy, depending on how the inflows were handled. “It will depend on whether the Reserve Bank absorbs some of the flows or whether they are ploughed back into the economy to boost growth,” he said.

The average of the confidence index for the first five months of 2005 is 4,4 index points, or 3,6% above the average for the corresponding period in 2004.

The Standard Bank/Sacob trade activity index rose to 51,2 last month from 50,8 in April.

Standard Bank said traction returned to the economy in the second quarter after a weak first quarter. The trade activity index was 46,8 in January. With I-Net Bridge