The business confidence index (BCI) rebounded to 47 in the third quarter of this year, according to a survey by Rand Merchant Bank (RMB) and the Bureau for Economic Research (BER) released.

This followed a fall from 43 to 36 in the second quarter of 2010.

The third quarter rise lifted the index to its highest level in two-and-a half years -- or the period shortly before the onset of global financial turmoil and subsequent recession.

The RMB/BER BCI reflects the percentage of respondents in the building, manufacturing, retail, wholesale and new vehicle trade sectors rating prevailing business conditions as satisfactory.

The index can vary between zero (when all respondents rated prevailing conditions as unsatisfactory) and 100 (when everybody rated it satisfactory).

A reading of 47, therefore, indicated that close to half of all respondents rated prevailing business conditions satisfactory.

Confidence in all five sectors making up the RMB/BER BCI increased during the third quarter. The biggest increases were registered in the new vehicle and retail trade sectors.

The survey found new vehicle dealer confidence surged by 30 index points, from 49 to 79. Confidence in the new motor trade was now at its highest level in four years.

Retail, wholesale and building confidence bounced back to their first quarter levels. Retail confidence increased 14 index points to 52, wiping out all the losses of the second quarter.

The confidence level of building contractors recovered to 25 (from 20 in the second quarter), while that of wholesalers rose to 50 (from 47 before).

Manufacturing confidence edged up from an index value of 28 in the second quarter to 30, its highest level since the end of 2008.

The survey found the confidence levels of the different sectors varied substantially, with the high confidence levels of the internal trade sectors standing in contrast to the low levels of the building and manufacturing sectors.

Business activity (as reflected by the results of the BER's survey of manufacturing production, building activity and retail, wholesale and car sales) had not rebounded as strongly and uniformly as did its measures of business confidence.

In some sectors, such as the manufacturing, building and semi-durable goods (mainly clothing) retail sectors, the rise in confidence went hand in hand with more lively business activity.

In other sectors, such as the new vehicle, wholesale and durable goods (furniture, appliances and electronic equipment) retail trade, confidence rose despite weaker activity levels.

Respondents across all sectors - with the exception of the semi-durable goods and new vehicles retail trade - expected activity to pick up during the fourth quarter.

Expectations that conditions would improve in the near-term were, therefore, a powerful force behind the higher confidence levels.

According to the survey it was necessary to point out developments in the key non-durable goods (mainly food) retail trade, where confidence declined further, with sales continuing to perform poorly.

RMB's chief economist Ettienne Le Roux said the results were encouraging in three ways.

"Firstly, the rebound in business confidence points to the second quarter decline having been an aberration in an otherwise upward trend.

"Secondly, the improvement in business confidence seen since the low point in the third quarter of 2009 is consistent with the economic recovery remaining on track.

"Thirdly, the adverse impact of renewed weakness in industrialised countries on the South African economy can be partly countered if our own economic growth drivers kick in more strongly."

Le Roux said the third quarter RMB/BER BCI results contained some evidence of domestic growth drivers beginning to take fuller effect.

"For instance, manufacturing production edged up despite the relatively strong rand, the low level of interest rates supported sales of particularly motor vehicles and semi-durable goods, while firms across all sectors retrenched fewer people during the third quarter."

Although the 11 index point jump in business confidence during the third quarter was unlikely to be repeated in the fourth quarter, a further moderate increase looked possible.

"That would take the index close to or slightly above the break-even 50 mark," Le Roux said.

"Such a level would be more or less consistent with an expansion in the overall economy of around three percent - or a sustained increase of the growth rate achieved during the second quarter of 2010."