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The SA Daily 10 September 2019

GFCF calls for confidence

Shireen Darmalingam

  • The Bureau of Economic Research business confidence index is due out tomorrow. Bloomberg consensus foresees an unchanged outcome of 28 pts for Q3:19, following 28 pts in Q2:19. At 28 pts, this is the lowest in two years and also well below the neutral 50 pts benchmark. The index had retreated sharply after the deep Q1:19 GDP contraction of 3.2% q/q (saar) (since revised to -3.1% q/q), a contraction which raised fears of an economic recession but since negated by the GDP recovery in Q2.
  • In Q1:19, investment contracted; gross fixed capital formation (GFCF) recorded a sharply down -4.1% q/q (saar), after a contraction of 2.5% q/q (saar) in Q4:18. However, investment growth in Q2:19 recovered to 6.1% q/q (saar) due largely to investments in machinery and equipment, transport equipment, and residential buildings. But investment in construction works and non-residential buildings contracted in Q2:19.
  • The GFCF outlook is bleak due to the dearth of business confidence. GFCF will mostly likely remain in negative territory this year, contracting by 0.4%, after the contraction of 1.4% in 2019.  
  • However, the growth-boosting economic strategy announced recently by National Treasury, if implemented by government, could aid investment growth in 2020 when an improvement to 1.6% may be expected.

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