The Rand Merchant Bank (RMB)/ Bureau for Economic Research (BER) Business Confidence Index (BCI) declined by only one index point to 26 points in the second quarter, indicating that the earlier sharp declines in business confidence was tapering off.

Similar to the previous quarter, business confidence levels had been "surprisingly small" in light of the poor actual business conditions, the BER noted in a statement on Tuesday.

Confidence had declined in the building and construction sector, which was down by ten points, the manufacturing sector, which was down by five points and the retail sector, which had a five-point decline.

However, this was offset by the wholesale sector, which had shown a five-point improvement and the motor trade sectors, which improved by seven points.

The BER said that the real economy likely contracted further during the second quarter of the year, but said this would probably not be as sharp as during the first quarter.

South Africa's gross domestic product contracted by 6,4%, compared with that of the fourth quarter of 2008, placing South Africa in its first recession in 17 years.

The researchers expected retail conditions to be at risk from weaker employment, but said that demand would be supported by lower inflation and monetary and fiscal stimulus.

Further, there were growing signs of a global economic recovery, which would go a long way in improving the "dire" manufacturing conditions.

South Africa's manufacturing output declined by 11,7% year-on-year in March, on the back of a 15% year-on-year drop in the previous month. South Africa's manufacturing data for April would be released by Statistics South Africa on Wednesday.

However, the short-term outlook for businesses would remain challenging, given the lags involved, noted the BER