Business confidence in South Africa has taken a knock as companies now grapple with renewed pressure from the war in the Middle East. The RMB/BER business confidence index fell by 8 points to 39 in the second quarter of the year.

The decline reversed gains recorded in the two previous quarters, placing sentiment just below the long-term average of 40.

The survey notes that while the recovery in business sentiment has lost momentum, confidence remains above the recent low of 27 recorded in the second quarter of 2023.

RMB Macroeconomist Keabetswe Mojapelo says the drop in confidence was not unexpected because the survey was conducted just after the conflict in the Middle East escalated.

“So, it also then coincided with the period where we then saw increasing fuel prices. We saw imminent interest rate hikes, which materialised. So, this is just after the survey was concluded. So then what you see with the survey is an expression from business about what they feel is what is right now, a very uncertain environment.”

Meanwhile, the drop in confidence was broad-based but varied across sectors. Mojapelo says the second-quarter survey suggests that businesses have become more cautious rather than outright pessimistic.

“What we have here right now is, yes, four out of the five sectors have actually shown some sort of less optimism than they had before. But then you look at the reasoning. A lot of it has to do with the fact that you’re probably going to get a pullback in consumption because households are facing hardships through these high increases in fuel, which also hit hard at transport, and ultimately, it’s going to spill over into other components of the CPI basket. But you also see, for instance, new vehicle dealers, they had the highest optimism at some point, but what you see with them now, they’re pulling back not only because there’s a bit of a fading in the momentum that they’ve had in the last year or so, but now you have interest rate hikes in place.”

While the confidence reading reflects local conditions, the concerns facing South African businesses are not unique. Companies around the world are navigating the same geopolitical risks and economic uncertainty as the conflict continues to disrupt investor sentiment.

VIDEO | Discussion on the impact of the Middle East war: