BUSINESS SENTIMENT
INDEX CLIMBS TO AN ALL-TIME HIGH
The barometer of business confidence rises sharply to set a bold new benchmark
The country is grappling with a multifaceted public health crisis, battling simultaneous outbreaks of dengue, chikungunya (CHIKV) and a new strain of the coronavirus with a majority of affected individuals reported in the Western Province.
Amid these health challenges, the country’s fiscal performance has shown signs of resilience. State revenue during the first four months of the year has risen with government inflows and grants surpassing Rs. 1,454 billion. In April alone, tax revenue amounted to in excess of 463 billion rupees, buoyed in part by the reopening of vehicle imports.
On the governance front, the pace of legal proceedings has picked up with recent high profile verdicts sparking public discourse on whether the administration will succeed in addressing corruption and uphold the rule of law.
Globally, uncertainty continues to loom: a widely publicised fallout between US President Donald Trump and tech mogul Elon Musk has sent ripples through the political and economic landscape, and there’s now a full-scale war in the Middle East.
THE INDEX Meanwhile, the LMD-PEPPERCUBE Business Confidence Index (BCI) soared to a record high in June, climbing 14 basis points to reach an unprecedented count of 210 – up from 196 in May.
June’s milestone consolidates the upward momentum observed in May, which was largely driven by the outcome of local government elections. It also surpasses the previous all-time equalling high of 204 recorded in February this year.
What’s more, the index remains above key benchmarks – standing 86 points higher than its all-time median of 124 and 49 notches above the 12 month average of 161. To put this in perspective, the BCI stood at a modest 101 in June last year, reflecting a notable turnaround in business confidence over the past 12 months.
According to PepperCube Consultants, the surge in confidence is driven by “the belief that while the government’s new economic policies may have a negative impact at present, they will ultimately help stabilise the economy and boost sales and earnings in the future.”
PROJECTIONS Admittedly, the BCI’s all-time high took us by surprise – and indeed, our projection of a downtrend missed the mark by a long shot!
That said, we continue to stand by our assertion that the index is likely to come under pressure sooner rather than later, given the downside risks.
On the global front, fresh reports from the United States indicate that Trump has no intention of extending the current pause on his sweeping tariffs – meaning that he is expected to hold firm once the 90 day moratorium expires at the beginning of July.
And on the domestic front, rising political instability – marked by inter-party friction, off-the-cuff remarks by members of the administration – and hikes in the price of consumer goods, not to mention the 15 percent hike in electricity tariff hike announced on 11 June and the prospect of an oil price spiral against a backdrop of mounting tensions in the Middle East, continue to raise concerns about the cost of doing business.
Which is why we believe the BCI’s rise to a new summit could well be a mirage – a short-lived high that masks the underlying risks on multiple fronts.
