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Business confidence strengthened in 2018 – BoB

Publishing Date : 09 July, 2018

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Confidence among businesses strengthened in the first half of 2018 compared to the second half of 2017, and is expected to rise further in the survey horizon. This is according to Business Expectations Survey (BES) conducted by the Bank of Botswana between March and April 2018.


The BES summarises views of the business community regarding their perceptions about the current and future state of the economy. The response rate stood at 89 percent in the current survey. “This higher confidence is also reflected in the forecast of a higher domestic growth rate of 5.3 percent for 2018 announced in the 2018 Budget Speech. Furthermore, in line with previous trends, more firms expect better business conditions going forward, with an overall confidence level of 68 percent for the second half of 2018 and 79 percent for the twelve-month period to June 2019. The improved confidence is reflected in both domestic-oriented and export-oriented firms,” reads the Survey report.


Furthermore the BES report notes that confidence amongst domestic-oriented businesses is 58 percent in H1:2018, compared to 46 percent in the second half of 2017, attributable to the estimated increase in Government spending in 2018/19 and the new leadership in the country.


Looking ahead, the BES report states that the level of optimism for domestic firms improved to 69 percent in H2:2018 and 78 percent in the year to June 2019. “Similarly, the confidence level of export-oriented businesses increased from 50 percent in H2:2017 to 55 percent in H1:2018 and is anticipated to increase to 60 percent in H2:2018, before rising markedly to 82 percent in H2:2018-H1:2019, reflecting the anticipated improvement in global trading conditions.”


Businesses expect domestic output growth in 2018 to be higher than in 2017 but lower than that anticipated in the 2018 Budget Speech. On average, businesses expect real GDP to grow by 4.1 percent in 2018. The projection is lower than the government forecast of 5.3 percent or 2018 announced in the 2018 Budget Speech.


However, the expected economic growth rate for 2018 by the business community is broadly in line with overall government expectations of an improvement in economic activity for the year and higher than the growth of 2.4 percent realised in 2017. According to the report modest economic growth is expected globally in 2018 and 2019. For the domestic economy, growth is expected to be driven improvements in the mining and non-mining sectors.


Global output is projected to expand by 3.9 percent in 2018 and 2019, an upward revision of 0.2 percentage points relative to the October 2017 forecast, and slightly higher than the 3.8 percent growth in 2017. “The upward revision to the forecast of global output growth reflects anticipated developments in advanced economies due to supportive financial conditions and the spillover effects of expansionary fiscal policy in the United States (US), as well as the expected increase in output growth in emerging market and developing economies,” reads the BES report.


In addition, it reflects the sentiment that growth momentum of 2017 will be sustained. Advanced economies are forecast to grow by 2.5 percent in 2018 and 2.2 percent in 2019, compared to 2.3 percent realised in 2017. Meanwhile, output growth in the emerging market and developing economies is expected to increase from 4.8 percent in 2017 to 4.9 percent and 5.1 percent in 2018 and 2019, respectively.  The prospective improvement in performance in emerging market countries is due to recovery in commodity prices and continued fiscal support.

However, inward-looking policies, the rising financial vulnerabilities and increasing geopolitical and trade tensions, present downside risks to global economic performance. 86 percent of businesses expect to utilize atleast 50 percent of their productive capacity in the first half of 2018, consistent with the optimistic outlook for 2018. Despite the perceived challenging business environment, survey respondents are relatively optimistic (compared to the previous survey) about the demand for their products in 2018.


The improved optimism, in turn, has led to higher expectations regarding production, as reflected by the net balance of 31 percent in H1:2018 against 7 percent in H2:2017. Meanwhile, businesses are expecting an improvement in profitability as reflected by the net balance of negative 14 percent profitability for H1:2018 against negative 22 percent in H2:2017. The improved outlook is attributable to strong growth in agriculture, higher commodity prices and recovery in investor sentiment, which is reflective of the recent political developments in the country.


In the domestic economy, real GDP grew by 2.4 percent in 2017, lower than the growth of 4.3 percent recorded in 2016. The lower increase was partly attributed to a slower growth of non-mining GDP, mainly reflecting the deceleration in output growth for trade, hotels and 3 restaurants, as a result of lower quality of diamonds sold by De Beers Global Sightholder Sales (DBGSS) in the third quarter of 2017. Moreover, the larger contraction of 11.2 percent in mining output during 2017 compared to a decline of 3.5 percent in 2016, mainly due to the closure of the BCL and Tati Nickel mines in October 2016, also stifled overall economic growth.


The 2018 Budget Speech presented a forecast of output growth of 5.3 percent for 2018. The positive outlook is largely attributable to the projected improvement in the mining sector. The mining sector is expected to recover due to improvement in demand for diamonds as a result of favourable global economic prospects.


Furthermore, the projected accommodative monetary conditions in the domestic economy, the anticipated expansion in government spending in the 2018/19 fiscal year and other activities promoted by government initiatives such as promotion of dam tourism, continued efforts to develop Information Communication and Technology through broadening network coverage, including by rolling it out to secondary schools, and continued implementation of measures to improve the ease of doing business in Botswana), as well as stability in water and electricity supply, are expected to support growth of the non-mining sectors. Regionally, South Africa GDP is projected to grow by 1.5 percent in 2018 and 1.7 percent in 2019, slightly higher than 1.3 percent in 2017.

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