"Confidence among producers for the domestic market is set to fall further, but there may be some improvement in sentiment in 2010. This is in line with increasing expectations that the global recovery may have commenced, although until this is clearly manifested, confidence across businesses is likely to remain low," said the report, which covered 2009 up to June 2010.

The survey, conducted between March and May, sampled 100 businesses in agriculture, mining, manufacturing, water and electricity, construction, trade, transport, financial and business services.

While business confidence has fallen sharply to 40 percent from 82 percent in the previous survey, the report says that sentiment has so far remained more positive than in the wake of the 2005 Pula devaluation, when it fell to 28 percent. "This may reflect the extent to which government spending has continued to support domestic demand.

However, for the second half of 2009, only 26 percent of the respondents expect business conditions to be satisfactory, before increasing to 36 percent for the 12 months ahead.

"This modest improvement in confidence is consistent with increased optimism that global economic growth may resume by 2010.  Consistent with the decline in confidence among businesses, expectations regarding profitability are similarly pessimistic with negative net balances of -52.7 and -77.7 percent for first half-2009 and second half-2009, respectively," the report said.

It added that with confidence levels of only 29 percent, exporters are currently the most pessimistic about prevailing business conditions. Demand for exports mainly diamond has nose-dived since the last quarter of 2008  as international markets were depressed due to the recession in the USA and Europe.

In contrast, confidence among domestic producers has slumped from 41 percent to 24 percent amid widespread expectation of falling production.

"This divergence in trends between exporters and those producing for the domestic market may reflect the considerable uncertainty regarding the extent of possible cuts in government spending," said the report. 

Although the crisis has heavily affected Botswana's revenue, government has tried to maintain spending levels by borrowing externally in a bid to maintain economic activity.

However, although confidence is low, the survey results show that business expect that GDP growth will be positive, albeit only modestly, at 2.8 percent in 2008-2009 and 2.6 percent in 2009-2010.

While this is substantially lower than in the previous survey, when growth of six percent was expected for 2008-2009 period, it remains optimistic, given that the suspension of diamond production for four months will have a substantial negative impact on overall GDP, particularly in 2008-2009. "In this respect, it is perhaps notable that these expectations are consistent with the growth estimate of 2.9 percent for 2008 that was published by the Central Statistics Office (CSO) while the survey was being conducted, possibly indicating the extent to which businesses use recent growth trends to guide their expectations," the report said.