Business confidence fell unexpectedly in the second quarter of this year, led by a plunge in retail trade and the vehicle industry and suggesting that economic growth has slowed, a leading survey showed yesterday.

A quarterly index compiled by the Bureau for Economic Research (BER) and Rand Merchant Bank (RMB) slipped by seven points to 36 during that period, taking it well below the neutral level of 50.

While the fall was described by RMB as "sobering", it said the drop should be put into the context of a sharp rise in the business confidence index (BCI) during the first quarter of this year.

"While the recovery is not yet deeply grounded or widespread, it would be wrong to take the seven point decline ... as indicative of a prospective slump in real output," said Ettiene le Roux, RMB chief economist.

"Indeed in many sectors, growth in real activity indicators .... remained virtually unchanged relative to first quarter levels, pointing to another decent, albeit somewhat weaker growth performance in the second quarter of 2010".

Growth in SA's economy accelerated to 4,6% in the first quarter of this year from 3,2% in the final quarter of last year, taking it further out of last year's recession, the first in 17 years.

But consumer demand, the main growth engine, is still weak and a breakdown of the BCI highlighted the problem.

Retail confidence fell by 13 points to 38 during the second quarter, led by falls in durable and semi-durable goods.

Confidence in new vehicle trade tumbled from 60 to a neutral level of 49 during the period, as dealers became sceptical that strong growth in sales would last.

There was no relief to the economy's two "laggards", RMB said. Confidence in the building sector fell from 26 to 20 while the mood in manufacturing dipped slilghtly to 27 from 28.

Both building contractors and manufacturers cited "insufficient domestic demand" as the biggest constraint. But more ominously, weaker export demand also weighed on certain manufacturers, RMB said.