Business Sentiments and Economic Growth in South Africa

Economic confidence is considered an important instrument in forecasting macroeconomic fluctuations. In every country, government is a central institution that is expected to stabilise the economy through proper economic policies implementation. However, it is in understanding the relationship between business sentiments and economic growth that major impact on their proxies, Business Confidence Index and Gross Domestic Product can be analysed and influenced. Therefore, the main objective of this article was to evaluate the relationship between business sentiments and economic growth in South Africa. The study employed a quarterly time series data for the period of 10 years ranging from 2008 to 2017, extracted from the Bureau of Economic Research and the South African Reserve Bank. The study employed an econometric methodology using the Johansen multivariate to test for cointegration and the Vector Error Correction Model to test relationships. The empirical results found suggest that there is a positive and significant long run relationship between Gross Domestic Product and Business Confidence Index. Thus, policy makers should consider the determinants of business sentiments and economic growth in South Africa in an attempt to enhance confidence and economic activities by creating an enabling environment for business operations to attract capital investment into the country.