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The SACCI Business Confidence Index (BCI) for August 2010 was released today at the SACCI Offices in Rosebank, Johannesburg.

The Index (BCI) jumped by 3.3 points to 87.6 in August 2010 from 84.3 in July. The level of the BCI for August 2010 is 4.6 points above the level for the same month in 2009 and is the highest reading for the BCI to date in 2010.

In comparing August 2010 with July 2010 (month-on-month) and with August 2009 (year-on-year), nine of the sub-indices of the BCI improved on both counts. Between July 2010 and August 2010 two sub-indices were negative and two were neutral. The sub-index on the volume of merchandise imports again recorded a relatively strong performance compared to previous months.

It can be expected that the spike in the SACCI Business Confidence Index during August 2010 will be followed by a correction as unusual positive developments on the trade account and net financial inflows from the rest of the world created the positive shift. However, the BCI will probably continue its generally positive trend in the medium term smoothing out the short-term volatility.

Early signals are that the third quarter will continue in the same vein as the second quarter as South Africa continues to be plagued by devastating strikes. These labour disputes have unknown dimensions for policy and crippling implications for instances where there are still public service delivery backlogs. The outcome of the public servants' strike will have serious consequences for already tight fiscal circumstances as well as unintended consequences for employment prospects.

SACCI believes that there is a case for lowering the interest rate thereby alleviating some of the financial pressures associated with servicing debt and potentially stimulating an improvement in current levels of economic activity. Credit extension to the business sector declined by 0.7% year-on-year in nominal terms in July 2010.

SACCI however acknowledges that interest rate reductions are not a panacea for sustainable economic growth. Such growth must be underpinned by economic discipline with regard to expenditure and labour remuneration, and a higher rate of fixed investment which would promote business confidence.