While the decline of business confidence in South Africa was not unexpected, it is not good news in as sluggish economy.
Business confidence in South Africa again ticked down in the third quarter, showing that just over 60% of respondents are dissatisfied with prevailing business conditions. However, business confidence is not only low in South Africa; it is a global problem brought on by the US tariffs and other significant political and economic policy changes.
The RMB/BER Business Confidence Index slipped further by one point to 39 after a five-point decline in the second quarter of 2025, three points below the long-term average level of 42 that the dissatisfaction of 60% of the local respondents.
Isaah Mhlanga, chief economist at RMB, says the underlying results point to an economy that is muddling through, with many activity and demand indicators in line with 20-year average levels.
“However, the current level of confidence is insufficient to drive an acceleration of much-needed investment to improve South Africa’s potential economic and employment growth rates.
“The South African business confidence experience in recent quarters is not out of line with what we see in many other economies. Last year brought significant political and economic policy changes in many countries, including South Africa. After the initial excitement, or in some cases disappointment, conditions are normalising into a difficult emerging global world order.”
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US tariffs affected business confidence
The third quarter survey took place from 6 to 25 August 2025, coinciding with the start of the 30% US tariffs on many of South Africa’s exports to the US and the realisation that we could not secure a better trade deal with the US before the deadline, Mhlanga says.
“While survey respondents mentioned the tariffs, it remains difficult to disentangle the impact on production and trade. Front-loading, cancellations and production holidays in the automotive sector, for example, also affected activity over the period.
“Overall, it is safe to guess that it was negative for sentiment. Local political developments were less eventful during the survey period than in the second quarter. The South African Reserve Bank (Sarb) cut its policy interest rate by a further 25 basis points at the end of July, which would have been a boon to the more interest rate-sensitive sectors of the economy.”
He also notes that the Sarb also announced its preference for a 3% inflation target from the existing 4.5% midpoint, which would allow for more interest rate cuts when inflation expectations fall closer to 3%. Meanwhile, consumer inflation ticked up in July, following a sub-3% streak in the first half of the year.
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Business confidence moved by 10 points or more in some sectors
Mhlanga says the largely flat composite index masks significant movements on a sector level.
“Confidence in each sector moved by 10 points or more and in most sectors, the change was bigger than the long-term standard deviation.
“This is unusual, but there are largely good reasons for the swings per sector. The business confidence in two sectors, building contractors and new vehicle dealers, improved from weaker second-quarter readings, while manufacturing, retail and wholesale dealers reported declines in confidence.”
He points out that new vehicle dealers, on the other hand, were a touch more optimistic about business conditions than pessimistic, with a confidence reading of 54, the second time this year that confidence was above 50 and in both cases, the jump in confidence was preceded by an interest rate cut.
“While sales volume growth remains strong, it seems to have peaked and is expected to slow down further going forward. Not all dealers benefit equally, with lower-priced and budget-friendly vehicles performing better than premium vehicles.”
Building contractors’ confidence increased by a welcome 11 points to 46 index points after a weaker second quarter reading. Mhlanga says while the non-residential segment continues to outperform, even residential builders were a little less pessimistic.
“Many of the underlying indicators returned to long-term average levels, suggesting the sector is chugging along but not accelerating.”
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Wholesalers’ confidence at lowest point in 5 years
After leading the pack in the second quarter, wholesalers’ confidence declined to 38 points, dipping below its long-term average of 45 points and reversing a five-quarter streak of outperformance as consumer goods struggled with sales volumes.
Mhlanga points out that confidence among retail traders also fell by 10 points to 32 as business conditions deteriorated, but notes that there were some pockets of strength, with the higher-income consumers still doing relatively well and furniture retailers standing out as a bright spot.
He says manufacturers had the lowest business confidence reading at 23 points after declining by 10 points. “However, many of the underlying indicators improved from the second quarter closer to long-term average levels. Despite this, business confidence declined as the uncertain global trade environment hit this sector harder than the others.”
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Service delivery
When it comes to the bottom line, Mhlanga noted that respondents struggled amid rising electricity costs, an onerous administrative burden and competition from imports, which do not always face the same hurdles in getting their product to market as local businesses.
“While corruption, red tape, sluggish logistics and other structural issues in the South African economy continue to feature, many comments also highlighted the failure of service delivery at a municipal level. We will likely see increased focus on this as we head to the local government elections next year.”
Mhlanga says the third quarter business confidence survey results are not unexpected, although they are certainly not inspiring for an economy that needs potential growth to be higher than it is.
“We must address the structural weakness in the South African economy, including speeding up economic reforms in the logistics, water and local government sectors, alongside coherent messaging across public and private sectors.”
Meanwhile, he says, the economy is expected to record a modest but relatively broad-based quarterly expansion in the second quarter when Statistics SA releases its global domestic product (GDP) figure next week.
“These survey results do not indicate a meaningful acceleration for GDP in the third quarter,” he says.