Optimism improves amongst local firms but concerns persist
Mbongeni Mguni | Monday May 8, 2023 06:00
The views are contained in the latest edition of the Bank of Botswana’s (BoB) Business Expectations Survey (BES) released on Tuesday.
The BES is conducted quarterly amongst a sample of firms representing most economic sectors and comprises different-sized entities which are both inward and export-facing.
The latest survey indicates that generally, local firms are more positive than they were in the previous BES about the local economy and trading conditions in the second quarter of the year and through to the end of the financial year in March 2024.
“The level of optimism (for domestic market-oriented firms) improves in the 12 months to March 2024, consistent with the anticipated continued domestic economic recovery,” the BES reads.
“Meanwhile, export-oriented firms are also optimistic about business conditions in the first quarter of 2023, but less optimistic in the subsequent quarter, possibly due to the continued expected disruptions in the world markets and inflationary pressures arising from the ongoing Russia-Ukraine war.
“Nonetheless, firms’ confidence improves in the year ending March 2024.” Surveyed businesses expect the economy to expand by four percent in 2023, equal to the projection by the Ministry of Finance and higher than the 3.7 percent estimated recently by the International Monetary Fund in the April update of its World Economic Outlook.
While the firms have a rosier outlook on the country’s general business conditions, an analysis of the latest BES indicates a deterioration in their views about individual business indicators, particularly in the short term.
Between the survey in the fourth quarter of last year and the latest BES, which covers the first quarter of this year, firms have become more pessimistic about the prospects for profitability, employment and sales volumes. The weaker outlook covers their forecasts for both the first and second quarters of the year.
Amongst the business factors troubling firms is the cost of capital as local firms expect lending rates to increase domestically, in South Africa and elsewhere in the 12 months to March 2024.
“Firms in the domestic and export-oriented markets perceive tight access to credit in the first quarter of 2023, reflecting the increase in interest rates by most central banks across the world, to combat high inflation,” the BES reads.
Between the fourth quarter of last year and the first three months of this year, surveyed firms grew more optimistic about their production or service capacity in the second quarter of the year, as well as their levels of inventories.
Firms also expect lower inflation going forward, in line with local and regional price trends. The improved outlook by the firms is the first time in several surveys where inflation or the cost of goods has not been cited as a challenge to business conditions.
“Firms expect cost pressures to be subdued in the first quarter of 2023, attributable to the expected downward pressure on materials and transport costs, mainly due to relatively lower fuel prices,” the BES reads.
“Nonetheless firms anticipate upward pressure on wages, mainly attributable to the expected increase in public sector wages in April 2023.”