Sentiment in the business sector in South Africa will remain cautiously optimistic about prospects for activity in the second quarter of 2025 despite strong performances in the new vehicle sector, as the African Growth and Opportunity Act (Agoa) benefits are seen at risk.

The RMB/BER Business Confidence Index (BCI), released on Wednesday, remained unchanged at 45 index points in the first quarter of 2025, marking four consecutive months where the index isbelow the 50-point neutral level.

Although this figure lies just above the long-term average of 43 points and is markedly higher than the sentiment recorded at the start of 2024, the overall picture reveals a troubling slip in confidence across four of the five key sectors surveyed.

The BCI survey, conducted between 5 and 24 February, reflects responses largely collected shortly after US President Donald Trump announced the cessation of all aid to South Africa.

The duty-free access to the US provided by Agoa has benefited a number of sectors, particularly South Africa’s automobile industry, and losing Agoa could cost tens of thousands of jobs and dent the government’s economic growth strategy.

While the selected sectors may not feel immediate effects from this geopolitical shift, RMB said the ramifications for already strained US-SA trade relations were troubling. Respondents voiced concerns regarding the potential impacts on the Agoa, which is critical for trade with the US.

However, RMB said not all concerns were globally driven as respondents in the building and manufacturing sector, in particular, were worried about ArcelorMittal’s potential closure and domestic demand in general.

RMB said the majority of responses were received prior to the delay in the tabling of the National Budget on 19 February.

Despite a composite activity indicator indicating slight growth from the previous quarter, business sentiment remained stagnant.

This development marked a notable departure from the broad-based recovery witnessed in the latter half of 2024, as confidence among all sectors—apart from new vehicle dealers—dipped in the first quarter.

Among the sectors, new vehicle dealers experienced a striking resurgence, with confidence soaring by 29 points to a significant 52.

Bolstered by improved sales volumes, lower interest rates, the ability to withdraw from two-pot retirement savings, and pent-up demand, this segment's positive trajectory has helped keep the BCI afloat.

However, RMB said should consumer confidence wane—perhaps due to increased taxes or lower sentiment—the sector could be vulnerable to a downturn, subsequently dragging the composite BCI lower.

In contrast, the retail sector managed to maintain a robust performance despite a slight dip in overall confidence, with sales volumes remaining positive for a second consecutive quarter.

Wholesale traders, however, faced challenges, recording the most significant confidence drop of the quarter; this corresponds with dwindling sales and deteriorating business conditions in the sector.

Building contractors saw a modest decline in confidence—down six points to 45—but still maintained confidence levels above the long-term average.

Encouragingly, respondents expressed optimism for future activity in their sector.

Meanwhile, business confidence within manufacturing dropped by two points to 34, with resilient export demand contrast to weaker domestic conditions.

Although production improved compared to the fourth quarter of 2024, investment showed a slight retrenchment, leaving the sector feeling somewhat jittery.

Isaah Mhlanga, chief economist at RMB, noted the mixed survey results may serve as warning signs for the economy.

Mhlanga said that without new vehicle dealers' notable surge in confidence, the composite BCI likely would have shown a decline at the beginning of the year.

“The consumer-linked sectors still performed well in the first quarter, but the question is whether this momentum can be sustained in coming quarters or whether the more industry-linked sectors can take over the baton of growth,” he said.

Mhlanga said the boost due to withdrawals from the Two-Pot retirement savings will fade, while interest rates were unlikely to move much further down in an environment of slightly rising inflation.

He said possible tax increases could burden the consumer further and that more geopolitical uncertainty could undermine confidence.

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