Recovery light could already be put out
Composite leading business cycle indicator
There was a positive sign for the local economy this week amid the gloom, but this bright spark might already have been put out.
The Reserve Bank said that its leading indicator rose for the seventh consecutive month in February. However, economists believe this trend will soon be snuffed out by the Cabinet reshuffle and the downgrade of the country’s credit rating to “junk” status.
A leading indicator is a means to try and track changes before the economy clearly demonstrates a new trend.
Nedbank economist Isaac Matshego said that the gauge appeared to show a better-than-forecast recovery. However, it was for the month of February, before the reshuffle and the downgrades, he added. “The bright light is not going to shine any brighter.”
Halen Bothma, a ETM Analytics economist, said: “A significant rock has been thrown into the pool.” It would take months for the indicator to react to the downgrades and it could move down, Bothma added.
The first Reserve Bank leading indicator that would factor in the April developments will be released in June. Since July last year, the gauge has climbed by 7%. Nedbank and FNB both have to cut their growth forecasts for 2017 to 0.7% due to recent events.