(Bloomberg) -- South African business sentiment unexpectedly fell in the fourth quarter as subdued demand sent new-vehicle dealers’ confidence to the lowest level since the coronavirus pandemic.

A quarterly business confidence index compiled by FirstRand Ltd.’s Rand Merchant Bank unit and Stellenbosch University’s Bureau for Economic Research declined to 31 in the three months through December from 33 in the prior quarter, according to a report published on Tuesday. The median of four economists’ estimates in a Bloomberg survey was 37. 

Business sentiment among new-vehicle dealers slipped to 6 index points, the lowest level since the second quarter of 2020, which was the strictest phase of the country’s Covid-19 lockdown restrictions. The plunge was driven by weak demand for new vehicles due to pressure on consumers’ incomes amid higher interest rates, RMB said. Data from the Automotive Business Council show sales declined in the past three months, compared with a year earlier.

The South African Reserve Bank’s monetary policy committee has raised interest rates by 475 basis points to 8.25% in its current tightening cycle that started in November 2021. It held rates steady at its last two meetings. and the next rate announcement will be on Thursday.

Dim Outlook

The drop in business sentiment doesn’t bode well for gross domestic product growth in the fourth quarter. 

“Real GDP growth likely slowed in the third quarter of 2023 and the survey results do not point to a meaningful reacceleration in momentum in the fourth quarter as activity remained subdued,” RMB said. “Beyond poor activity growth, the business environment remained tough and trading conditions did not improve as respondents had hoped for last quarter.”

Logistical challenges including long delays at ports, frequent power cuts, roads in poor condition, crime and corruption remained pressing concerns, RMB said. 

“The decline in the RMB/BER Business Confidence Index also reflects underlying demand weakness,” Isaah Mhlanga, chief economist and head of research at RMB said. “The best example being the depressing outcomes for the interest-rate-sensitive new vehicle dealers this quarter, but local sales volumes remained sluggish across the board.” 

South Africa’s statistics agency will publish third quarter GDP data on Dec. 5. Economists polled by Bloomberg in a separate survey expect the economy to expand 0.1% from 0.6% in the three months to June. 

(Updates with more details from paragraph six)

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