A 2,2 point decline in the May Business Confidence Index (BCI) had neutralised earlier gains, the South African Chamber of Commerce and Industry (Sacci) said on Thursday, while warning that the recent spate of labour demands would likely prolong the country's path to economic recovery.

The BCI fell to 82 points in March, after having steadily improved to 84,2 points between January and April.

Sacci pointed out that the May decline had led to the BCI being only 0,8 points higher than in January, with the drop having neutralised the gains business confidence had made so far this year.

Only four of the subindices, namely the liquidations, manufacturing, inflation and precious-metals prices indices, had made positive month-on-month contributions to the BCI in May, compared with the nine subindices that had recorded positive contributions in April.

The retail sales, construction of buildings and real private sector borrowing indices had recorded neutral contributions to the BCI for May, while the exports, imports, vehicle sales, share prices, real financing costs and real exchange rate indices had made negative contributions.

The dip in export and import volumes in May had played a large part in negatively impacting on the BCI in May, while seven out of the 13 subindices had been at a lower level last month than in May 2009.

However, Sacci pointed out that the May BCI was still 0,2 points higher than it had been in May last year, and that it had recorded the third successive year-on-year improvement since 2007.

"The upward trend in the BCI since the beginning of 2010, may re-establish itself if the business environment becomes more favourable than it was during May 2010," the chamber noted.

RISKS TO ECONOMIC RECOVERY

Meanwhile, Sacci emphasised that it was essential that all economic stakeholders realised the "critical nature" of positive contributions and responsible behaviour in the "current fragile" economic environment.

It said that the local economy was finding it challenging to recover from the recession, with the recovery remaining largely dependent on the continuation of a fixed investment cycle and the recovery of the global economy.

"Real household expenditure currently remains under pressure. Small and medium enterprises appear reluctant to borrow with real private fixed investment declining. Under these difficult circumstances, South Africa is still dogged by debate on the economic model that is appropriate for the country and a spate of labour demands for wage rates well in excess of inflation," Sacci stated.

It added that this would prolong the path to recovery and would have a negative impact on growth and job creation prospects.

"Despite the gross domestic product (GDP) figures for the first quarter [of] 2010 indicating that economic growth has gathered further momentum, the current strike activity, the threats of future labour unrest and financial market developments on the back of global uncertainty may tarnish economic growth prospects later in 2010," the chamber said.

South Africa's GDP grew by 4,6% in the first quarter of this year, exceeding market expectations, which had forecast growth of about 4%.

A three-week strike held by labour union members at Transnet over a wage dispute, in May, was estimated to have cost the local economy at least R7-billion in lost production and sales.

Some of the country's largest labour federations have threatened strike action over the electricity tariff hikes approved by the National Energy Regulator of South Africa, in February.

Further, Sacci highlighted that the public sector debt problems in some of the Euro zone economies has, again, caused uncertainty over the world economy's recovery.