Despite the modest monthly improvement, confidence remained vulnerable to external shocks and rising costs.
Image: Leon Lestrade/Independent Newspapers
Sentiment in the business sector in South Africa showed signs of stabilising in May after suffering a sharp decline in April, although concerns about inflation, energy costs and the ongoing conflict in the Middle East continue to cloud the economic outlook.
The South African Chamber of Commerce and Industry (Sacci) Business Confidence Index (BCI), released on Thursday, edged up by 0.5 index points in May to 124.1, recovering slightly from the steep 7.7-point decline recorded in April.
Despite the modest monthly improvement, confidence remained vulnerable to external shocks and rising costs. The chamber cautioned that confidence remains highly sensitive to global developments, particularly oil prices and geopolitical tensions, as businesses navigate an increasingly uncertain economic environment.
Sacci said the index remained significantly stronger than a year ago, standing 8.3 points higher than in May 2025, while the average BCI for the first five months of 2026 was 129.0 compared with 120.0 during the same period last year.
According to Sacci, the sharp deterioration in sentiment seen in April was largely linked to the surge in global crude oil prices following the escalation of conflict in the Middle East.
"The BCI increased by 0.5 index point between April and May 2026. Between March and April 2026, the decline of 7.7 index points was considerable. It however appears that the negative sentiment caused by the recent soaring crude oil price subsided somewhat in May," Sacci said.
The chamber said stronger new vehicle sales, increased merchandise export volumes and, to a lesser extent, higher import volumes provided the biggest boost to confidence during May. However, a decline in overseas tourist arrivals and rising inflation weighed heavily on sentiment.
Sacci noted that business confidence remained relatively resilient despite the volatility experienced over recent months.
"Despite short-term volatility and downward correction, the Sacci BCI remained a significant 8.3 index points higher year-on-year. It was only higher inflation and energy prices that slightly negatively affected business confidence if compared to May 2025," the chamber said.
The business organisation said South Africa's economy continues to feel the effects of geopolitical tensions in the Middle East, although positive developments such as improving sovereign credit ratings and government efforts to strengthen fiscal stability have helped support sentiment.
Sacci pointed to recent ratings actions and growing confidence among international investors regarding South Africa's fiscal outlook.
"In general, a more positive view of economic prospects was expressed by rating agencies. These views mainly hinged on fiscal consolidation, declining public sector debt levels and debt servicing," Sacci said.
The chamber also acknowledged the South African Reserve Bank's recent decision to raise the repo rate by 25 basis points, describing the move as being in the interest of maintaining economic stability despite concerns about its impact on growth.
The review highlighted that inflation accelerated from 3.1% in March to 4% in April, prompting the central bank to adopt a more cautious monetary policy stance. Sacci noted that inflationary pressures were largely driven by rising fuel costs linked to higher global oil prices rather than strong domestic demand.
"The problem is that inflation is a process and that the spark led by fuel prices as a basic input to all economic activities, will kindle the inflation process and must be contained coming from whatever source," Sacci said.
One factor helping to cushion the economy has been the relative stability of the rand. Sacci said the local currency's resilience against the US dollar had softened the impact of rising crude oil prices and reduced imported inflation.
"The steady rand and government's lowering of the fuel levy helped to reduce the effect of fuel prices, restrain inflationary pressure, and be less of a drain on the economy," the chamber said.
Nevertheless, Sacci warned that South Africa still faces significant structural challenges, including weak economic growth, persistently high unemployment and low levels of fixed investment.
The chamber said sectors such as manufacturing, retail trade, construction and mining continue to underperform, limiting the economy's ability to generate sustainable growth and employment.
BUSINESS REPORT